Core views

In 2023, against the backdrop of the commissioning of the debt-conversion and fund-raising project and declining raw material prices, the company's operating conditions improved dramatically. Q4 achieved net profit of RMB 2.40 to RMB 280 million, an increase of 111.19% to 146.38% over the previous year; it realized deducted non-net profit of RMB 220 to 260 million yuan, an increase of 82.55% to 115.74% over the previous year. Looking ahead to 2024, as raw material prices continue to be low, the company's 60 million square meter Taisheng Intelligent “Tiantai Intelligent Manufacturing Production Base Project” is expected to help the company grow in the medium to long term and bring the company's performance to a new level.

occurrences

The company announced a pre-increase in annual results for 2023

On January 18, 2024, the company announced a preliminary increase in annual results for 2023. In 2023, it is expected to achieve net profit of RMB 240-280 million, an increase of 111.19% to 146.38% over the previous year; to achieve non-net profit deducted from mother of RMB 220 to 260 million yuan, an increase of 82.55% to 115.74% over the previous year. Among them, Q4 is expected to achieve net profit of 0.78 to 118 million yuan in a single quarter, +171.33%-+310.31%, +30.15% -+96.82% month-on-month; realized net profit of 0.62 to 102 million yuan, +83.39%-+201.04% year-on-year, and +5.68%-+73.48% month-on-month.

Brief review

The release of production capacity combined with the decline in raw material prices has greatly improved. Since 2023, the company's convertible bond project “High-strength, Energy-saving and Environmentally Friendly Conveyor Belt Project with an Annual Output of 15 Million Square Meters” has been built and put into operation one after another. With the gradual commissioning of the company's additional production capacity, the company's business development has been smooth, and revenue has achieved steady growth. On the cost side, the upstream conveyor belt is mainly natural rubber, synthetic rubber, polyester canvas, steel wire rope, nylon canvas, PVC resin, cotton canvas, carbon black, various chemical fine materials, etc. In recent years, nearly 80% of the company's product conveyor belt cost comes from raw materials. With the gradual decline in the cost of various chemical raw materials, the company's profitability has increased significantly. Among them, the gross margin for the first three quarters was 20.26%, up 3.29pct compared to 16.97% in 2022. Against the backdrop of new production capacity investment and declining raw material prices, the company's operating conditions have improved dramatically. In 2023, it is expected to achieve net profit of RMB 240-280 million, an increase of 111.19% to 146.38% over the previous year.

The conveyor belt market space is vast. The Tiantai Intelligent Manufacturing Production Base Project helps grow downstream customers in the conveyor belt industry mainly involving cement, steel, coal, electricity, ports, etc. According to data from the China Rubber Industry Association, China's conveyor belt production fluctuates at a level of about 500 million square meters. Looking forward to the future, as the domestic economy gradually stabilizes and conveyor belts gradually replace truck transportation with the advantages of being safer, more environmentally friendly, energy-efficient and efficient for transporting bulk materials, the market space is expected to be further enhanced. Currently, in addition to the 15 million square meter convertible bond project, the company continues to steadily promote the construction of Taisheng Technology's “60 million square meter intelligent conveyor belt project with an annual output of 60 million square meters”. In the future, as the company's full production capacity is put into operation, it will have 150 million square meters of production capacity, opening up room for growth.

Profit forecast and valuation: The company is expected to achieve net profit of 260 million yuan, 301 million yuan, and 352 million yuan in 2023, 2024, and 2025, respectively. The corresponding EPS is 0.63 yuan, 0.73 yuan, and 0.86 yuan, respectively, and the corresponding PE is 12.45X, 10.76X, and 9.18X, respectively. Considering the broad future space of the transmission belt market, the company continues to promote the construction of intelligent transportation projects. The business performance is expected to benefit from scale effects and additional production capacity investment, and continue to grow steadily. According to estimates, the company's revenue and profit growth rate is relatively stable. The compound profit growth rate for 2023-2025 was 16.38%, and the company's PEG index was less than 1. Taking into account the company's profit growth rate and valuation situation, the company's current stock price still has good investment value, covered for the first time, and given a “buy” rating.

Risk warning: 1. The construction progress of the project falls short of expectations Risk: The company's smart conveyor belt project is still under construction. The project is large and takes time, and the delay of the project will lead to incomplete production capacity release; 2. Risk of rising raw material prices: the company's main raw materials are rubber, cord, etc., and the market price fluctuates greatly. The sharp rise in raw material prices will crowd out profit space and adversely affect the company's gross profit margin and profit level; 3. Risk: The application of transmission belts in the field of industrial intelligence is still lagging behind. Currently, the transmission belt market is mainly concentrated in the field of heavy conveyor belts. Intelligent industrial applications account for relatively little, and there is a risk that product demand will fall short of expectations.

Sensitivity analysis: Assuming a 0.5% gross profit margin on the company's conveyor belt business in the context of project construction falling short of expectations, rising raw material prices, and falling demand for products, the company's net profit forecast for 2022 to 2024 is 250, 2.88, and 338 million yuan.