Incident: The company announced the pre-reduction of its 2023 annual results. In 2023, the company expects to achieve net profit of 1,360 to 1,460 billion yuan, a year-on-year decrease of 75.1% to 76.8%; it is expected to achieve net profit deducted from mother of 12.80 to 1,380 billion yuan, a year-on-year decrease of 77.2% to 78.9%. The Q4 quarter of 2023 is expected to achieve net profit of 426 to 526 million yuan, a year-on-year decrease of 44.0% to 54.7% and a month-on-month increase of 31.0% to 61.8%; net profit without return to mother is 401-501 million yuan, a year-on-year decrease of 52.6% to 62.1%, and a year-on-year increase of 21.5% to 51.8%.

Prices of glyphosate and silicone fell sharply, putting pressure on the 23-year performance, but there was an improvement in Q4. Affected by macroeconomic and market supply and demand changes, market sentiment in the agrochemical and silicone sectors declined in 2023, and the volume and price of products such as glyphosate raw materials and silicone DMC dropped sharply, putting pressure on the company's performance. However, since the third quarter, the agrochemical sector market has gradually picked up, and the profitability of the company's various agrochemical products has increased, driving the company's business performance to achieve two consecutive quarters of month-on-month growth. In terms of price, according to Baichuan Yingfu data, the average prices of glyphosate, silicone DMC, yellow phosphorus and monoammonium phosphate decreased by 47.8%, 37.1%, 24.6%, and 12.3% year-on-year respectively in 2023. The average prices for 23Q4 changed by +17.5%, -7.8%, +12.0%, and -0.3%, respectively. In terms of gross profit, according to Baichuan Yingfu data, the gross profit for 23Q4 changed by -57.9%, -3.6%, -60.5%, and +8.1%, respectively. In the specialty chemicals sector, the sector was relatively less affected by the macroeconomy in 2023. Overall, it maintained a steady development trend, and is an important source of the company's performance.

Focusing on the new materials business such as phosphorus, silicon, sulfur-based and microelectronic materials, key projects are progressing steadily. In terms of wet electronic chemicals, the company's subsidiary Xingfu Electronics has now formed a wet electronic chemical production capacity of about 183,000 tons/year, and projects such as 20,000 tons/year of electronic-grade ammonia co-production of 10,000 tons/year of electron-grade ammonia are progressing steadily. At the same time, construction of the Shanghai Electronic Chemical Zone has begun, which will form a scale of 40,000 tons/year of ultra-high purity electronic chemicals after completion. At the same time, the company plans to build a 2,200 tons/year microcapsule project, of which the first phase of 550 tons/year was completed and put into operation in March 23, and large-scale sales of the products have been achieved; the Hubei Ruijia 200,000 tons/year RTV project (phase 1) was completed in mid-July; the company's phosphating agent project has completed 800 tons/year trial and is undergoing industrial plant design; as of November 10, 23, the company's 5,000 m3/year aerogel project has entered the final stage of construction; currently the company's 1000 tons/ year aerogel project has entered the final stage of construction; currently, the company's 1000 tons/ year aerogel project has entered the final stage of construction; currently, the company's 1000 tons/ year aerogel felt project has entered the final stage of construction; currently the company's 1000 tons/ year aerogel project has entered the final stage of construction; currently the company's 1000 tons/ year aerogel project has entered the final stage of construction; currently the company's 1000 tons/ year aerogel project has entered the final stage of construction The lithium iron phosphate pilot line of the year has steadily produced qualified products; the small test line at the kilogram scale of lithium iron manganese phosphate has achieved stable discharge, and small products have been sent to GAC, BYD and other companies for verification.

Profit forecast, valuation and rating: Since the third quarter, the agrochemical sector market has gradually picked up, and the company's business performance has achieved month-on-month growth for two consecutive quarters. However, considering that the profitability of related cyclical chemical products is still at the bottom, we lowered the company's profit forecast for 23-25 years. We expect the company's net profit to mother for 23-25 to be 14.08 (down 6.4%) /19.19 (down 12.6%) /21.69 billion yuan (down 20.9%), respectively. The company is a leading domestic fine phosphorus chemical enterprise. In recent years, it has further deployed new microelectronic materials, new silicone materials, and new energy materials, pioneered new development momentum, and maintained a “buy” rating.

Risk warning: Product and raw material prices fluctuate, new capacity construction falls short of expectations, R&D risks.