Event: The company released its 2023 performance forecast. It is expected to achieve net profit of 162 to 172 million yuan for the full year of 2023, an increase of 45.39% to 54.36%; net profit after deduction of 160 million yuan to 170 million yuan, an increase of 71.96% to 82.71% year on year; and achieve basic earnings per share of 0.84 yuan/share to 0.90 yuan/share.

Production and sales have increased, costs have declined, and the profitability of the company's products has increased. For the full year of 2023, the company expects to achieve net profit of 162 to 172 million yuan, an increase of 45.39% to 54.36% over the previous year; it is expected to achieve net profit after deduction of 160 million yuan to 170 million yuan, an increase of 71.96% to 82.71% over the previous year. Net profit to the mother increased significantly compared to the same period last year. The main reason is that the company strengthened operation management, continued to promote internal cost reduction and efficiency, and independent R&D and innovation. Production efficiency was steadily improved. Coupled with increased industry demand, the company's product production and sales all increased; at the same time, the cost of raw and auxiliary materials declined in 2023, and the profitability of the company's products increased.

Cost support was compounded by strong demand, and the company's performance exceeded expectations.

Raw material side: Starting at the end of the fourth quarter of 2022, the price of high-temperature coal tar, etc. of upstream raw materials of carbon black fell rapidly. The average price of high-temperature coal tar reached 6,400 yuan/ton in early December 2022, and the price of carbon black fell to 2,600 yuan/ton in May 2023. The first half of 2023 was insufficient, and the company's profit declined year-on-year in the first half of the year; in the second half of the year, rising global crude oil prices drove up on a large scale. High-temperature coal tar rebounded from the bottom 2,600 yuan/ton to 5017 yuan/ton. In mid-September, the price of carbon black for rubber broke through the 10,000 mark.

Demand side: Tire companies have a high operating level. According to Zhuochuang information, starting in March 2023, the operating rate of semi-steel tires has remained above 70%. According to China Tire Business Network, total global tire sales for the full year of 2023 are expected to be 1.82 billion, up 4.0% year on year: of these, passenger car tire sales were 1.59 billion, up 5.2% year on year; commercial vehicle tire sales were 230 million, up 1.8% year on year. Throughout 2023, thanks to the recovery in overseas demand, the tire industry grew significantly, and demand for carbon black was strong.

Break through stuck neck technology to achieve sustainable co-development. The company seizes the high voltage trend of power grids and the boom in new energy vehicles and supporting industries. The construction of the “Nano Carbon Material Project with an annual output of 100,000 tons of high voltage cable shielding materials” project is progressing steadily, with the aim of replacing domestic nanocarbon materials for high voltage cable shielding materials. According to the company's estimates, after delivery, the project is expected to contribute 1.58 billion yuan in revenue and 270 million yuan in net profit every year, enhancing the company's long-term sustainable development capabilities.

Profit forecasting and investment advice. EPS is expected to be 0.80 yuan, 0.98 yuan, and 1.84 yuan respectively in 2023-2025, and the corresponding dynamic PE will be 18 times, 15 times, and 8 times, respectively, maintaining the “buy” rating.

Risk warning: The risk of a sharp decline in the economy, the risk of project commissioning falling short of expectations, the risk of downstream demand falling short of expectations, and the risk of large fluctuations in raw material prices.