Incident: On April 25, the company released the 2022 annual report and the 2023 quarterly report, which included revenue in 2022 (797 million yuan, +93.58%), net profit to mother (596 million yuan, +195.88%); realized revenue in the first quarter of 2023 (207 million yuan, +19.58%), and net profit to mother (148 million yuan, +63.68%).
Record performance and significant increase in profitability
In 2022, the company focused on demand in key areas, with production assurance and supply as the core, and achieved significant growth in business performance. During the reporting period, revenue (797 million yuan, +93.58%) and net profit attributable to mother (596 million yuan, +195.88%), both reached record highs, mainly due to: (1) full orders from demand-side downstream customers, supply-side companies' 100 ton lines and kiloton lines participated in production at the same time, and the superimposed wire conversion rate increased and equipment usage efficiency further exploited potential production efficiency. Production volume increased rapidly. Production volume reached 312 tons (+113.68%) in '22, and sales volume reached 299 tons (+91.66%); (2) Eligible for the additional deduction for equipment purchased by high-tech enterprises According to relevant policies, the company enjoyed tax concessions of more than 80 million yuan; (3) During the reporting period, the company obtained comprehensive income of about 32.93 million yuan through cash management of raised funds, agreed deposits, etc.
On a quarterly basis, Q1-Q4 achieved revenue of 1.73/1.42/2.04/278 million yuan, net profit to mother of 0.91/0.94/1.36/275 million yuan, Q4 revenue increased 36.27% month-on-month, net profit increased 102% month-on-month, and overall quarterly performance showed a steady growth trend.
2023Q1 achieved revenue of 207 million yuan, +19.58% year over year, mainly driven by downstream demand. Production increased 27.09% year on year, and sales increased 10.70% year on year.
Q1 achieved net profit of 148 million yuan, +63.68% over the same period last year, mainly due to increased sales revenue and the refund amount corresponding to previous annual contracts achieved in 23Q1. In addition, Q1 revenue was -25.54% month-on-month compared to 22Q4, and net profit was -46.18% month-on-month. The main reason was that the company carried out centralized maintenance of equipment in the first quarter to ensure the equipment integrity rate and usage rate, and lay a good foundation for new and old production lines to work in parallel throughout the year.
The ability to control expenses continues to be strengthened, and profitability has been greatly improved. The company's gross margin in 2022 was 75.63%, down 1.45 pct year-on-year, due to depreciation expenses included in operating costs after the kiloton line was put into operation. The net interest rate increased by 25.83 pct to 74.71%, mainly related to the year-on-year decrease in the cost ratio of 16.37 pcts to 9.94% during the period. Among them, the management expense ratio decreased by 10.92 pct year on year, mainly due to the commencement of operation of the kiloton line, depreciation and labor costs included in management expenses were transferred to production costs; the financial expense ratio decreased by 1.23 pct, mainly due to a sharp increase in interest income during the reporting period. As the company continues to strengthen cost management, the scale effect continues to show as production capacity increases, and the company's profitability is expected to further increase.
Forward-looking balance sheet indicators are prominent, and reduced cash payments have led to a decline in cash flow. In 2022, the company's accounts receivable increased by 231.87% compared to the beginning of the period, mainly due to an increase in sales. The company's cash flow is expected to improve further after repayment. The company's fixed assets increased by 70.27% compared to the beginning of the period, and the number of projects under construction increased by 731.19% compared to the beginning of the period, indicating that some production lines of the Phase III project have been converted, and the remaining part is being promoted. It is expected to help increase the company's production capacity and consolidate the foundation of performance after commissioning. Furthermore, the company's net operating cash flow in 2022 fell 56.66% from the beginning of the period, mainly due to a year-on-year decrease in customer cash payment settlements.
Demand is plentiful, production capacity is fully released, and the company's performance is fully flexible. On the demand side, according to the announcement, large contract customers have clearly announced orders, and the total demand for products from potential users has also increased significantly over the same period last year, and downstream demand is strong. On the supply side, the production capacity of the company's 100-ton line and kiloton line has been further exploited. The third phase of the project has been accelerated, multi-line production capacity will be fully released, and the company has already begun subsequent construction of new lines, with sufficient production capacity reserves. While resolving the conflict between supply and demand, it also lays a solid foundation for the company's performance growth. Furthermore, the ZT8 carbon fiber review has been passed, and subsequent batch application can be expected. As the company continues to increase the depth and breadth of market development, it is expected to create more new growth points for the company.
Equity incentives have been implemented, demonstrating confidence in long-term growth. On October 13, the company issued an equity incentive plan (draft), which aims to grant 1,092 thousand shares of restricted shares to the incentive target, of which 873 thousand shares are to be awarded in the initial incentive plan. The incentive target is 13 people, including the company's senior management, middle management, and business backbone, at a price of 23.36 yuan/share.
The equity incentive plan set two conditions: target value and trigger value to assess the company's performance. Among them, with reference to the target conditions, the company's net profit due to mother in 2022/2025 was 4.33/7.04/9.06/1,147 billion yuan respectively, up 115%/63%/29%/27% year on year, and the compound growth rate was 38.36%. Referring to the trigger conditions, the company's net profit to mother in 2022 was 4.13/6.74/8.65/10.87 billion yuan, respectively, up 105%/63%/28%/ 26%, a compound growth rate of 38.07%. This equity incentive is expected to have a long-term incentive effect on the company's performance growth, demonstrating the company's confidence in the sustainability of medium- to long-term performance.
Investment advice: The company is a leading domestic supplier of high-performance carbon fiber. With the accelerated release of demand in the downstream aerospace sector, the company's carbon fiber products are expected to benefit the core. In addition, the company is actively raising capital to expand production and lay out the aerospace field. As the fund-raising projects are completed in an orderly manner, the company's future performance is expected to grow further. The company's net profit for 2023-2025 is estimated to be $74, 9.3 and 1.14 billion yuan, respectively, with 23 times 32 times PE, corresponding to a 6-month target price of 54, maintaining a “buy-A” rating.
Risk warning: the commissioning of fund-raising projects falls short of expectations; customer development progress falls short of expectations; risk of falling product prices; risk of relative concentration of customers.