Event: Kaili New Materials released its 2023 three-quarter report. The company achieved operating income of 1,340 billion yuan, +3.1% year-on-year, and net profit of 97.6978 million yuan, -44.2% year-on-year; of these, Q3 achieved revenue of 370 million yuan in the single quarter, -18.2% year-on-year, -22.1% year-on-year, and achieved net profit of 6.562 million yuan, -86.0%, -86.8% month-on-month.
Affected by the decline in precious metals prices and changes in the sales structure, the rapid decline in revenue and profit and the decline in precious metals prices still had a great impact on the revenue and profit side. According to Wind data, the market price of precious metal palladium in China in '23 was 396/373/331 yuan/gram, respectively -27.4%/-28.3%/-37.1% compared to the previous quarter, -21.5%/-5.9%/-11.2% compared to the previous quarter. The company's sales business in the first three quarters (precious metals business model calculated in revenue costs) accounted for more than 90%
The decline in sales business gross margin further affected net profit: the company's gross profit margin for the first three quarters of 2023 was 13.35% and net profit margin 7.3%, down 7.3/6.2PCT respectively from the same period last year, while the gross profit margin for the third quarter of '23 was 8.4%, net profit margin 1.8%, down 8.2/8.6PCT from 22Q3, respectively, down 7.4/8.7PCT from month to month. The decline in gross margin was the main influencing factor in the decline in profit. However, the decline in gross margin is mainly due to:
1. The initial balance price of the company's precious metal raw materials was high, leading to a decline in the company's gross margin. The market price of precious metals from January to September 2023 was in a period of decline, and the company's initial inventory of necessary revolving materials was large. The purchase price of revolving materials participated in raw material cost accounting once a weighted average at the end of the month, causing the precious metal balance unit price included in the precious metal catalyst sales products in the first three quarters to fluctuate up and down compared to the market price. The reduction in the cost of the company's products sold was lower than the decline in sales prices, thus leading to a decline in the gross margin of the precious metal catalyst sales business.
2. Changes in the company's product structure have led to a decline in gross margin. In the company's sales business, sales of some uniform phase precious metal catalyst products with high gross margins declined, and product gross margin also declined compared to the same period last year. As a result, the average precious metal catalyst sales business margin from January to September 2023 was 7.91%, down 9.01% from January to September 2022, which in turn led to a decline in the company's overall gross margin.
Foreign investment cooperation in hydrogenated nitrile rubber to accelerate the industrialization and transformation of catalytic technology The company also issued the “Foreign Investment and Related Transaction Notice”. The company plans to jointly invest 100 million yuan with institutional and individual shareholders to establish a new company, Binzhou Kaitai. Among them, Kaili New Materials has a pledge ratio of 40%, which will be included in the scope of the company's consolidated statement. The new company uses Kaili New Materials's core catalytic technology in hydrogenated nitrile rubber (HNBR) to cooperate with the Ningbo team to produce and sell HNBR. This cooperation may promote the company's business development in the field of high-end catalytic materials and technology and its layout in the field of new materials. HNBR is a high-performance synthetic rubber that is widely used in automotive, aviation, aerospace, petrochemical and other fields. The industrialization of this project responds positively to national policy guidance, is of great strategic significance, and has broad market prospects.
Profit forecast: Affected by the decline in precious metal prices, the gross margin of the sales business declined rapidly. We lowered the company's net profit forecast for 23-25 to 1.56/2.62/291 million yuan (previous value: 2.49/2.96/339 million yuan,) to maintain the “buy” rating.
Risk warning: Precious metals prices continue to decline rapidly; foreign investment projects fall short of expectations; safety and environmental production risks.