Incidents: On October 31, the company released its report for the third quarter of 2023. In the first three quarters of 2023, the company achieved operating income of 2,538 billion yuan, a year-on-year decrease of 29.99%; realized net profit of 153 million yuan, a year-on-year decrease of 64.42%; and realized net profit after deduction of 174 million yuan, a year-on-year decrease of 57.83%. Among them, in the third quarter, the company achieved net profit of 100 million yuan per quarter, down 99.19% year on year and 98.33% month on month.

The European Union has launched an anti-circumvention investigation into China's biodiesel industry. According to Jin Lianchuang, the market-focused issue of ISCC's traceability of palm-based raw materials such as POME oil is still ongoing. According to section 23 of Regulation 2016/1037 on preventing subsidized imports of products from non-EU member states, as amended on June 8, 2016, the European Biodiesel Commission (EBB) requested the European Commission to investigate the possibility that biodiesel imported from China and the United Kingdom may circumvent countervailing measures imposed on imports of biodiesel originating in Indonesia. The European Commission announced the official launch of an investigation in August.

The export volume and export price of biodiesel in the third quarter were under pressure due to the impact of anti-evasion investigations. China's biodiesel industry was hit hard in the third quarter as the European Commission announced an investigation into the transit of biodiesel originating in Indonesia through China and the United Kingdom to circumvent anti-dumping tariffs. According to data from Zhuochuang Information, in terms of export prices, the average export prices of biodiesel in July-September were 1,083, 1063, and 1,100 US dollars/ton respectively, down from 1314, 1266, and 1176 US dollars/ton from April to April 2023, and a sharp drop from 1866, 1769, and 1656 US dollars/ton in July-September 2022. Looking at export volume, domestic biodiesel exports fell sharply in September. The monthly export volume was 119,600 tons, down 25.77% from the 1611,000 tons in August. In the third quarter of 2023, China's biodiesel export volume was 445,600 tons, down 24.84% year on year and 11.81% month on month. The volume and price of biodiesel in China were under pressure in the third quarter.

The company is a leading domestic biodiesel company and actively cooperates with EU investigations and exemption applications. According to the company's 2022 annual report, the company's biodiesel production capacity has reached 500,000 tons, and the production capacity of bio-based materials has reached 90,000 tons. The company's 200,000 tons/year hydrocarbon-based biodiesel production line and 50,000 tons/year natural fatty alcohol production line projects have now obtained construction real estate warrants, construction project planning permits, etc. According to the records of investor relations activities disclosed by the company, the company team has carefully studied relevant EU policies and actively cooperated with EU investigations and exemption applications; at the same time, the company will take measures to protect its own rights and interests and ensure the normal operation of the company's business.

Investment advice. With the company's new biodiesel production capacity being invested and produced one after another and the biodiesel industry's prosperity rebounded, we are optimistic about the company's long-term growth. The company's earnings per share for 2023-2025 are estimated to be 1.58, 3.13, and 4.33 yuan respectively, corresponding to PE 25.16, 12.71, and 9.18, respectively, maintaining the “buy” rating.

Risk warning: Downstream demand falls short of expectations, project construction progress falls short of expectations, product price fluctuations are at risk.