After being deeply involved in the industry for many years, the revenue growth rate was gradually restored in '23, and the profit side is expected to improve.
The company focuses on the field of pharmaceutical glass. In '23, the borosilicate business of Pharmaceutical Boyu continued to grow at a high rate, and its revenue share in the first half of the year increased to 45.7%. The heat-resistant glass and light source glass business was accompanied by the recovery of domestic and foreign markets, and the company's marketing efforts increased and gradually restored. 23H1 also increased by 12.05%. 23H1's revenue was 462 million yuan, up 23.0% year on year. Affected by various factors such as rising raw material prices and energy prices, an increase in sales team, and new investment in kilns that have not yet reached operating levels and increased R&D expenses, 23H1's net profit was $0.4 billion, down 34.95% year on year.
Demand for heat-resistant glass at home and abroad has recovered, and marketing efforts have increased.
In the first half of '23, overseas demand for heat-resistant glass recovered steadily, and the company stepped up its marketing efforts. 23H1 revenue was 242 million, an increase of 12.05%, and revenue growth accelerated. The company continues to expand product categories, increasing the production of high borosilicate glass for LED optical lenses and the production of lightweight high borosilicate glass equipment.
The borosilicate pharmaceutical glass industry is booming, and the concentration of leading companies is accelerating.
In 2023, H1, pharmaceutical glass business revenue was 211 million yuan, an increase of 36.9% over the previous year, of which borosilicate pharmaceutical glass bottle revenue was 172 million yuan, an increase of 38.22%. Consistency evaluation accelerates the replacement of borosilicate with low borosilicate or sodium-calcium glass. We expect the pharmaceutical glass business to maintain medium to high growth this year. In the long run, according to data from the Pharmaceutical Network, the penetration rate of borosilicate pharmaceutical glass in mid-2018 was only 7%-8%, and the proportion of borosilicate pharmaceutical glass used in pharmaceutical glass packaging materials in China is relatively low. In terms of production capacity, the company expanded and put into operation a new production line for molded bottles and controlled bottles in 2022.
It is recommended to pay attention to the transition of medium borosilicate molded bottles to A, and it is expected that the production capacity of molded bottles will continue to be released.
The competitive pattern in the borosilicate molded bottle market is better. It is actively developing the molded bottle market and expanding the range of lightweight products. The company's management attaches importance to R&D and technology accumulation. In April '23, the first phase of the company's “Phase III High-end Pharmaceutical Packaging Project”, the “Lightweight Pharmaceutical Molded Glass Bottle (Class I) Industrialization Project”, was officially completed. The convertible bond project has fully reached post-delivery. It is estimated that 47,000 tons of additional production capacity will be added, with a total production capacity of 630,000 tons for medium borosilicate molded bottles. In 2022, the company signed a cooperation agreement with the Shanghe County Government for the construction of the third phase of the project. The total investment scale of the project is 2 billion yuan, providing a guarantee for the company's long-term production capacity.
Profitability is under pressure in the short term, and prices of raw materials and energy are in the high range of the market.
In Q1-Q3 of 2023, the company's gross profit margin was 17.31%, a decrease of 6.44 percentage points, mainly due to rising raw material prices and energy prices. The prices of raw materials such as borax and boric acid required for high borosilicate heat-resistant glass products are high. At the end of September, the raw material boric acid was about 7,450 yuan/ton, and the price of energy and natural gas was about 4,300 yuan/ton.
Adjust profit forecasts and maintain a “buy” rating.
The company is a leading borosilicate glass product company in China. Among them, pharmaceutical glass has maintained a relatively rapid growth rate.
As the commissioning of fund-raising projects progresses, the company will further expand the production capacity of the borosilicate pharmaceutical glass business.
Furthermore, considering the gradual release of molded bottle production capacity in 2014, our adjusted profit forecast predicts that the company's net profit for 23-25 is 0.9/111/130 million (previous value was 0.8/0.9/110 million yuan), EPS is 0.4/0.5/0.6 yuan/share, and corresponding PE is 48/38/32X, respectively.
Risk warning: changes in the international economic situation and trade environment, price fluctuations of major raw materials, technical risks, capacity absorption risks, risks of falling short of expected benefits, etc.