Core views
Since 2023, the chemical industry has been under pressure. Weakening market demand compounded by increased competition, the company's short-term profitability has declined in stages. Sales of Q3 main products increased, and the company achieved revenue of 208 million yuan, an increase of 12.83% over the previous month. In the future, Q4 profitability is expected to continue to recover as cost side raw material prices decline and sales volume recovers. The company bucked the trend and expanded production capacity, upgraded the product structure and expanded its scale, launched a high-end polyolefin POE project, grasped new opportunities in the industry, and is expected to continue to maintain its leading position in the industry and open up new growth space on the basis of having a main business.
occurrences
The company released its report for the third quarter of 2023
On October 27, 2023, the company released its report for the third quarter of 2023. The first three quarters of 2023 achieved operating income of 587 million yuan, a year-on-year decrease of 11.11%; realized net profit of 48 million yuan, a year-on-year decrease of 43.82%; and realized net profit deducted from non-return mother of 46 million yuan, a year-on-year decrease of 44.59%. Among them, in the third quarter of 2023, the company achieved operating income of 208 million yuan, a year-on-year decrease of 7.26%, an increase of 12.83%; realized net profit of 108 million yuan, a year-on-year decrease of 57.62%, a decrease of 61.49% over the previous year; and realized net profit of 0.07 billion yuan, a year-on-year decrease of 63.07%, a decrease of 65.50% over the previous year.
Brief review
Industry demand is under pressure, and Q4 profitability is expected to recover
Affected by the macroeconomic situation, the overall downward pressure on the chemical industry has been strong since the beginning of the year. Weakening market demand coexists with increased competition. The company's downstream customers are under high operating pressure. The pressure is transmitted upstream in the industrial chain, and the company's profitability has declined in stages. In the first three quarters of 2023, the company's revenue declined year on year. The main reason was that the sales volume of the company's main product, a single dose of antioxidants, fell by 22.8% year on year, and the average sales prices of single agents of catalysts and antioxidants fell 15.6% and 13.0% respectively. Looking at a single quarter, 23Q3 achieved revenue of 208 million yuan, a year-on-year decrease of 7.26%, and a year-on-month increase of 12.83%. The increase in sales of single agents of catalysts and antioxidants led to a month-on-month increase in Q3 revenue. As prices of raw materials such as phenol and isobutene fall and sales of major products recover, Q4 profitability is expected to be further restored.
Buck the trend and expand production capacity, consolidate the main business and consolidate the leading position
The company is one of the few professional suppliers in China that have both high-efficiency catalysts and chemical additives for polymer materials. Currently, there are 24 types of catalyst products and 7 types of antioxidant single agent products. Since its establishment, the company has focused on the field of polyolefin catalysts, formed a product sequence with Ziegler-Natta fourth-generation catalysts as the core, and carried out research and development of metallocene catalysts. Against the backdrop of weakening downstream demand in the industry, the company bucked the trend and expanded through IPO fund-raising projects. The company's polyolefin catalyst production capacity will expand from 225 tons to 475 tons; antioxidant single agent production capacity will expand from 22,500 tons to 44,500 tons; and composite additives production capacity will expand from 8,500 tons to 28,500 tons. This round of expansion will further consolidate the company's existing main business, upgrade its product structure and expand its scale, accumulate momentum at the bottom of the industry, and further consolidate its leading position in the industry.
Start a high-end polyolefin POE project to open up new growth space
Relying on the company's R&D accumulation in the field of polyolefin catalysts and the POE technology license agreement signed by the company earlier, the company launched a high-end polyolefin POE project. The total construction scale of the project is 400,000 tons of POE and 300,000 tons of α-olefins. Among them, the processes used in the POE joint device and α-ene device are imported mature process packages. The project will be implemented in two phases: a recent project and a long-term project. The overall plan covers a total area of 1,333 million square meters, and the total investment of the recent project plan is 10 billion yuan. On September 8, 2023, the company issued the “Notice on the Progress of POE High-end New Material Projects”. Its wholly-owned subsidiary Dingjide Petrochemical Technology has signed an investment agreement with the Dalian Changxing Island Economic Development Zone Management Committee, signed a procurement agreement with equipment suppliers, and obtained approval. The first phase of the project filing has been completed. In the context of the continuous acceleration of POE domestic substitution, the company is actively deploying POE high-end polyolefin, which is expected to fully seize new opportunities in the industry and further open up a new growth situation.
Profit forecast and valuation: The company is expected to achieve net profit of 95 million yuan, 158 million yuan, and 624 million yuan respectively in 2023, 2024, and 2025. The corresponding EPS is 0.71 yuan, 1.17 yuan, and 4.64 yuan respectively, and the corresponding PE is 54.72X, 33.00X, and 8.34X respectively. The company has strong industrial experience and technical advantages in catalysts, antioxidants and compound additives, and is also actively deploying the POE industry. In the future, it is expected to combine demand growth in the downstream market to further enhance its market position. According to estimates, the compound growth rate of net profit from 2022-2025 is 78.29%, and the company's PEG index is less than 1. Taking into account the company's profit growth rate and valuation situation, the company's current stock price still has good investment value, covered for the first time, and given a “buy” rating.
Risk warning: 1. Risk of product price fluctuations: The company's catalysts, single agents of antioxidants, and compound additives account for a large share of sales revenue. Pricing mainly refers to the supply and demand situation in the downstream market. If demand in the downstream market fluctuates greatly, adjusting product prices will have a great impact on the company's performance; 2. Risk of raw material price increases: the cost share of major raw materials such as titanium tetrachloride, hexane, phenol, and isobutene is high, which is greatly affected by macro factors and crude oil price trends. If raw material side costs and product prices fail to keep pace, it will adversely affect the company's profit adjustments; 3. Poor sales Expectations:
The company's main products are antioxidants, catalysts and compound additives. If the sales situation of the new production capacity falls short of expectations, it will affect the company's operating income and performance; 4. Project commissioning falls short of expectations: The company actively expands production capacity and launches high-end polyolefin POE projects through IPO fund-raising projects, but the implementation time or implementation progress of the project may not meet expectations, thus affecting the company's performance growth.
Sensitivity analysis: Assuming that future downstream demand falls short of expectations, fluctuations in raw materials affect product gross profit margins, and the company's production capacity is relatively less than expected, the company's net profit forecast for 2023-2025 is 0.80, 1.32, and 524 million yuan.