Incident: Covex shares discloses annual results forecast:
① 23 Full year: net profit to mother of 72-760 million (median value of 740 million), yoy +85.5%-95.8% (median value of 90.7%); net profit of non-return to mother of 703-743 million yuan (median value of 723 million yuan), yoy +85.8% - 96.38% (median value of 91.1%).
② 23Q4: Net profit to mother of 184-223 million (median value of 204 million), +37%-67% (median value of 52%); net profit of non-return to mother of 177-217 million (median value of 197 million), +33%-63% year-on-year (median value of 48%). Performance continued to be high and overall in line with expectations.
Business progress & outlook: New production capacity expansion actively accepts new downstream demand, and the incremental contribution of personal care ingredients is imminent
① The limited production capacity of competing factories favors stable volume growth and price growth. The Chemspec fire incident in India is expected to affect its production (the core is mainly traditional sunscreen agents HMS, OMC, AVB, and OS). On the one hand, the limited production capacity of competitors will further increase the company's market share. At the same time, the tight supply situation in the industry can ensure that prices remain stable based on the company's volume increase.
② The expansion of production in Malaysia is expected to resolve production capacity bottlenecks. The new 10,000-ton sunscreen production expansion project in Malaysia includes traditional sunscreen AVB, etc., and the new sunscreen P-S. Construction is scheduled to begin in April. It is expected to take 1 year to complete the infrastructure and then take 3 to 4 months for commissioning. It is expected to be put on the market in the second half of 2025. Priority will be given to expanding production of AVB and P-S. The new production capacity expansion project is expected to resolve its production capacity bottleneck.
③ The contribution of new personal care ingredients is expected to increase over 24 years. The personal care ingredients project is progressing steadily, and it is expected that quantities of aminophenol, PO, carbomer, etc. will begin in '24.
Investment advice: Share increase window period, active expansion of production+ strong barriers from major customers & rising domestic sunscreen momentum + multiple drivers for iterative expansion of new products, long-term outlook for the company to build a comprehensive raw material supplier. ① Competitive sunscreen suppliers face the problem of withdrawing production capacity or limited production expansion, so the company's competitive pattern continues to improve, and it is expected that volume and price increases will be stable in the context of capacity expansion; ② Strong binding barriers with major customers such as DSM are deep, and at the same time, the share of domestic sunscreen products represented by Bethany is rapidly increasing. The leader Pereya is also expected to launch new sunscreen products. Domestic sunscreen brand replacement is expected to accelerate domestic replacement of upstream raw materials; ③ New sunscreen agents EHT, PA, and P-S are expected to continue to explode, and it is expected that new product release will drive the company's revenue Double increase; ④ The amount of new personal care ingredients is imminent, and it is expected that the future will gradually increase Expanding the field of sunscreen to create a leading comprehensive supplier of raw materials. We forecast net profit of 7.4/9.4/1.12 billion yuan for 23-25, corresponding to PE 16/12/10x, maintaining the “Highly Recommended” rating.
Risk warning: Competition in the industry intensifies; production expansion falls short of expectations; downstream demand recovery falls short of expectations.