Introduction to this report:
China's export volume of lubricant additives declined month-on-month in October, but the long-term growth trend did not change, maintaining an “increase in holdings” rating.
Key points of investment:
Maintain the “Overweight” rating. Considering the month-on-month decline in lubricant exports, it was lowered from 23 to 2.25 yuan (originally 2.41 yuan), and the 24-25 EPS remained at 2.99/3.65 yuan, respectively. Due to the large market space for lubricant additives and high barriers to composite products, the company's overseas penetration rate has steadily increased, maintaining a target price of 60.3 yuan (20.15 times PE corresponding to 2024).
In October, China's exports of lubricant additives declined month-on-month, leaving the long-term import substitution logic unchanged. According to customs data, in October 2023, China exported 159,000 tons of lubricant additives, -10.49% month-on-month and -33.18% year-on-year. The average export price was 2,516 yuan/ton, -1.73% month-on-month and -8.19% year-on-year. From January to October 2023, exports totaled 177,700 tons, +10.97% year-on-year, and the average export price was 23,000 yuan/ton, +2.00% year-on-year. Looking at 23 years, the overall volume and price of China's lubricant additive exports showed a sharp rise in volume and price. Although export volume declined slightly in October in a single month, it did not change the long-term import substitution logic.
Maintaining high crude oil prices brought cost support, and downstream lubricants began a wave of price increases. According to Wind, the average settlement price of Brent futures in October '23 was 88.73 US dollars/barrel, -3.21% over the previous month, and crude oil prices remained high. In order to cope with the increase in raw material costs, major lubricant manufacturers such as Great Wall, Kunlun, Shell, Shengpai, and Unification started a wave of price increases, with price increases ranging from 2%-10%.
Compared with overseas benchmarks, there is plenty of room for growth. According to Wind, Newmarket, the parent company of Afton, one of the top four overseas lubricant additive companies, achieved revenue of 2,055 billion US dollars in the first three quarters of 23, -1.30% (the company was 2.152 billion yuan, +5.42% yoy), and gross margin was 28.97% (the company was 34.46%). Compared with overseas companies, the company still has a lot of room for growth. It is expected to explore global market segments faster through cost advantages and cost-effective products and services.
Risk warning: Market development falls short of expectations, and raw material prices are rising.