The company released its three-quarter report for 2023. In the first three quarters, it achieved operating income of 1,406 million yuan, a year-on-year decrease of 18.31%; realized net profit of 235 million yuan, a year-on-year decrease of 38.01%; and realized net profit after deduction of 207 million yuan, a year-on-year decrease of 23.12%. Among them, 23Q3 achieved operating income of 509 million yuan, an increase of 3.82% over the previous year, an increase of 9.48% over the previous year; realized net profit of 85 million yuan, an increase of 3.14% over the previous year, an increase of 18.49% over the previous year; and realized net profit after deduction of 83 million yuan, an increase of 29.57% over the previous year, an increase of 27.51% over the previous year. The company's small variety sector continues to grow, effectively boosting the company's overall performance and maintaining the buying rating.
Key points to support ratings
23Q3 The company's performance improved month-on-month. The company's net profit declined year-on-year in the first three quarters of 2023, mainly due to weak downstream demand, withdrawal of major products from production, and a year-on-year decline in non-recurring income. 23Q3 The company's operating income and net profit both increased month-on-month. The main reason was that in the first half of 2023, the company actively optimized its product structure and gradually withdrew from the production of a large variety of products in the water reducing agent sector. At the same time, it was actively developing market prospects for growing products such as surfactants for wet electronic chemicals and new energy adhesives, etc., with broad market prospects and good profitability performance. The company's gross margin for the first three quarters of 2023 was 24.10%, up 0.49 pct year on year; 23Q3 gross margin was 25.80%, up 5.98 pct year on year, up 3.64 pct year on month. In the future, as the company's product structure continues to be optimized, the company's profitability is expected to gradually increase.
Large varieties have withdrawn, and production and sales of small varieties have continued to grow. According to the company's main business data for the first three quarters of 2023, the company's large variety sector produced 0.63 million tons (yoy -81.73%), sales volume 0.80 million tons (yoy -76.95%), average sales price of 6,986.95 yuan/ton (yoy -15.00%), and achieved revenue of 56 million yuan (yoy -80.41%); on the other hand, in the first three quarters of 2023, the small variety sector produced 95,900 tons (yoy +4.74%), sales volume 97,800 tons (yoy+) 6.49%), with an average sales price of 1,3795.27 yuan/ton (yoy -11.70%), achieving revenue of 1,349 billion yuan (yoy -5.97%). In the future, the company's small-range products are expected to contribute more to increased performance.
The price of raw materials continues to fall, and the steady progress of production capacity construction is expected to contribute to growth. According to Baichuan Yingfu, the average prices of ethylene oxide and propylene oxide in the first three quarters of 2023 were 6,497.17 yuan/ton and 9,599.42 yuan/ton respectively, down 13.51% and 8.99% from the previous year. According to the company's main business data announcement for the first three quarters of 2023, the company's average purchase prices for ethylene oxide and propylene oxide in the first three quarters of 2023 were 5,605.30 yuan/ton and 8,618.37 yuan/ton respectively, down 14.19% and 8.66% from the previous year. As of September 30, 2023, the number of projects under construction of the company was 355 million yuan, an increase of 6.34% over the end of the 22Q3 period. According to the company's 2023 semi-annual report, projects under construction include Real Madrid's Kaimeike high-end functional new materials project with an annual output of 330,000 tons, a polyetheramine technical improvement project with an annual output of 90,000 tons, and a polyimide technical improvement project with an annual output of 200 tons. As various projects are put into operation, the company can be expected to grow in the future.
valuations
Due to sluggish downstream demand, the profit forecast is adjusted. The 2023-2025 EPS is expected to be 0.56 yuan, 0.72 yuan, and 0.87 yuan, respectively, and the corresponding PE is 20.1 times, 15.5 times, and 12.9 times, respectively. We are optimistic about the increase brought about by the steady increase in production and sales in the small variety sector, and maintain the buying rating.
The main risks faced by ratings
Project progress fell short of expectations, product prices fluctuated sharply, and downstream demand continued to be sluggish.