Description of the event

The company released its three-quarter report for 2023. In the first three quarters, it achieved revenue of 2.91 billion yuan (+3.8% year-on-year), attributable net profit of 280 million yuan (-8.6% year-on-year), and attributable non-net profit of 240 million yuan (-12.2% year-on-year). Among them, Q3 achieved revenue of 970 million yuan in a single quarter (+13.9% yoy, +4.3% yoy), imputed net profit of 0.6 billion yuan (+372.7% yoy, -20.2% yoy), and realized imputed non-net profit of 0.4 billion yuan (+500.5% yoy, -34.3% yoy).

Incident comments

Performance declined slightly, gross margin increased, and expense ratios increased during the period. The company's performance in the first three quarters declined year-on-year, mainly due to the decline in spandex business revenue and business gross margin. The company's gross margin for the first three quarters was 24.8% (YoY +2.7 pct), of which Q3 gross margin was 20.8% (+5.6 pct y/y, -4.4 pct). The company's expense ratio for the first three quarters was 13.1% (+5.1 pct), with sales, management, finance and R&D expense rates changed by +1.0, +2.7, +0.6, and +0.8 pct, respectively. Among them, the increase in sales expense ratio and management expense ratio was mainly due to increased product sales in the current period, increased freight and storage costs, remuneration system reform, and confirmed equity incentive costs.

The supply and demand pattern has worsened, and the spandex boom is weak. The company's spandex business revenue was under pressure in the first three quarters, and gross margin declined. On the supply side, the release of new domestic spandex production capacity reached 160,000 tons in the first half of 2023, and is expected to release 72,000 tons of additional production capacity in the second half of the year. There is some pressure. On the demand side, demand for spandex was weak in the first three quarters, and Q4 is expected to see a rebound, driven by overseas inventory replenishment and thick, warm fabrics. Q2 The price of spandex rose and fell. By the middle of the year, the price of conventional varieties had fallen by 2.9%-6.3% compared to the end of last year. The average price fell by more than 30% over the previous year, and the average industry load was 79.8%. The average price of Q3 spandex 40D was 31,708 yuan/ton, down 1.5% from Q2, the average price difference of spandex 40D was 1,1951 yuan/ton, down 9.1% from Q2, and the average industry load was 71.2%, down more than 8% month-on-month, and the economy remained low.

Production capacity has been increased, and aramid revenue continues to grow. The company's aramid business revenue increased in the first three quarters. In terms of meta-aramid, production capacity has been greatly increased. As new production capacity is put into operation, products are being promoted in high-end fields such as protection, etc., sales in the industrial filtration field have been appropriately increased, but due to increased competition in the low-end market, prices in the filtration field have been adjusted; in terms of counteraramid, project construction is progressing smoothly, and promotion in the fields of protection and rubber has increased significantly, based on outdoor optical cables, automobile hoses, composite materials, etc., and production and sales have increased significantly.

Lithium battery coating creates new demand, and viability continues to be verified. The aramid coated diaphragms developed and produced by the company have high temperature resistance, good infiltration, strong adhesion, and high ion conductivity, which can effectively improve the cycle performance and safety performance of batteries. The company leads or participates in the development and production of high-performance aramid separators, which can significantly reduce industry costs and improve the technical level of battery separator preparation. In March 2023, the company's aramid coated diaphragm pilot production line achieved stable operation. Currently, technical exchanges and product verification work are being carried out with battery manufacturers. Verification by several customers has already entered stage B or stage C.

The company plans to build an efficient intelligent meta-aramid engineering project. After the completion of the company's project, it will form a production capacity of 20,000 tons of aramid and its derivatives per year. The construction period is planned to be 2 years. According to preliminary estimates, the average annual revenue of the project (tax included) is 2.29 billion yuan, the total annual profit is 690 million yuan, and the average annual net profit is 590 million yuan.

Maintain a “buy” rating. The company is a leading spandex and aramid enterprise. In the traditional field, the cost advantages of the company's spandex industry are beginning to show, and there is huge room for aramid imports to replace aramid. In the field of new materials, the company's aramid coated lithium battery separators has excellent performance. It is expected that large-scale production will be achieved in the future, and the market space will be large. With the gradual release of the company's spandex and aramid production capacity, growth is gradually reflected. The estimated net profit attributable to the company in 23-25 is 360 million yuan, 6.7 billion yuan and 1.03 billion yuan, respectively.

Risk warning

1. The price of spandex has dropped sharply;

2. The progress of aramid import substitution is lower than expected;

3. The verification of aramid lithium battery coating fell short of expectations.