Incidents:

The company announced its 2023 annual results forecast. The company's performance is expected to achieve net profit of 85 million yuan in 2023, or -81.24% over the same period. The performance declined sharply, mainly due to the review of biodiesel exports by various EU agencies. As a result, European customers' purchasing intentions declined due to concerns about retroactive tariff adjustments, which had a negative impact on the company's biodiesel exports. However, we believe that the company will actively face and resolve issues, adjust sales strategies while maintaining normal production and operation, and actively sell to local customers in the EU by setting up overseas subsidiaries, and the future performance is expected to gradually recover.

Key points of investment:

Performance declined sharply due to EU scrutiny. By changing sales strategies and actively deploying overseas, Phoenix Nirvana is expected. During the reporting period, the company's performance is expected to achieve net profit of 85 million yuan in 2023, or -81.24% over the same period. This is mainly due to the review of biodiesel exports from China by various EU agencies. Among them, ISCC initiated a review of Chinese biodiesel certification companies in April 2023, the European Commission initiated an anti-circumvention investigation on biodiesel exported from China and the UK to the EU in August, and an anti-dumping investigation on biodiesel products originating in China in December. Such investigations caused European customers to decline their willingness to purchase due to concerns about the retroactive adjustment of tariffs, which had a major impact on the company's biodiesel export prices. The average annual sales price of biodiesel decreased by more than 25% compared to last year. However, the company actively faced and solved the problem, adjusted its sales strategy while maintaining normal production and operation, and actively sold to local customers in the European Union by setting up overseas subsidiaries, and the future performance is expected to gradually recover.

Raw material procurement advantages: The company has established a stable and standardized procurement system for waste oils and fats, fair quality monitoring standards and procurement channels covering the whole country and Southeast Asia region, and has established long-term stable business trust relationships with many suppliers to achieve stable supply of raw materials and reasonable cost procurement. At the same time, in order to enhance comprehensive operating capabilities and international competitiveness, the company began the establishment of two subsidiaries in Singapore and the Netherlands in the second half of 2022. At present, two subsidiaries have been established and are successively carrying out business in the areas of raw material resources, product terminals, logistics, market information, and technology research and development.

Production technology advantages: Through measures such as improving its own operating capacity, improving production processes and controlling costs, the company has continuously increased the yield of high-quality products at various biodiesel production plants, reaching more than 89.5%. At the same time, the company continued to increase R&D investment. In 2022, the company invested more than 200 million yuan in R&D, an increase of 37.14% over the previous year, focusing on R&D work in fields such as comprehensive utilization of waste oils and biodiesel and new bio-based materials (synthetic resins, new halogenated materials, lithium battery electrolyte additives, etc.) technology development to promote the company's continuous high-quality development on the path of “biomass energy integration”.

Downgraded to “Overweight” rating. Although the entire industry was dragged down by multiple EU agencies investigating Chinese biodiesel in 2023, the company maintained normal production and operation, while actively changing sales strategies to solve problems, and the company set up overseas subsidiaries to sell biodiesel to local customers in the EU to solve the problem of multiple EU agency reviews of domestic companies. It is expected to recover all sales and maintain growth within 1-2 years. We lowered our profit forecast. The company's net profit for 2023-2025 is 0.85, 181, and 334 million yuan (before the reduction 3.56/5.28/ 789 million). The current stock price is 39, 19, 10 times PE corresponding to 23-25, and has been lowered to an “plus” rating.

Risk warning: European market orders fell short of expectations, competition in the biodiesel industry intensified, waste oil prices fluctuated greatly, and the continuous escalation of the Red Sea crisis led to route blockages.