Description of the event

On February 23, 2024, Excellent New Energy released a performance report. In 2023, it achieved operating income of 2.75 billion yuan, a year-on-year decrease of 36.7%; net profit to mother was 81.79 million yuan, a year-on-year decrease of 81.9%; net profit after deducting non-return to mother was 109 million yuan, a year-on-year decrease of 77.2%.

Corresponds to 2023Q4 revenue of 211 million yuan, a year-on-year decrease of 70.7%; net profit attributable to mother - 71.25 million yuan, a year-on-year decrease of 430.7%; net profit not attributable to mother - 64.45 million yuan, a year-on-year decrease of 195.2%.

Incident comments

The company's net profit declined by 81.9% in 2023, mainly due to the review of biodiesel exported by various EU agencies in 2023, which led to a decline in the willingness of downstream customers to purchase biodiesel, and the volume, price, and profitability of biodiesel fell sharply.

Operating side: 1) Production: In 2023, the company produced 432,200 tons of biodiesel, +5.56% year on year; capacity utilization rate was 86.0%, down 9.85pct year on year. 2) Sales volume: Fujian Province exported 439,000 tons of biodiesel in 2023, and the company's export volume in 2023H1 accounts for 80.0% of Fujian Province. Assuming this ratio is maintained throughout the year, it is estimated that the company will export 351,000 tons of biodiesel in 2023, with a year-on-year decrease of 13.2%, and the production and sales rate is 81.7%. 3) Price: The price of biodiesel dropped by more than 25% year on year in 2023. 4) Profitability: Biodiesel's operating profit in the 2023 mid-year report accounts for more than 95%. Here, we simply assume that 100% of net profit to mother contributed to the biodiesel sector. We estimate that the company's net profit per ton of biodiesel in 2023 was 241 yuan/ton, which is a historical low.

Reason: 1) Volume and price: In 2023, multiple EU agencies will review China's biodiesel exports. Among them, ISCC initiated a review of Chinese biodiesel certification companies in April, 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 against biodiesel originating in China in December. The aforementioned survey caused European customers to worry about the retroactive adjustment of tariffs, and their willingness to purchase declined, causing the average price of biodiesel to drop by more than 25% over the same period last year.

2) Profit: Profitability fell to a freezing point due to the fact that gutter oil prices remained rigid (as the restaurant industry's recovery fell short of expectations). 3) Quarterly impact: 2023Q4 lost 71.25 million yuan in net profit to mother. Profitability declined sharply due to the company's independent sales business in Europe since the fourth quarter, the sales cycle was lengthened, the number of finished products in transit at the end of the period was large, depreciation and amortization were rigid costs, and Q4 saved employee bonus expenses.

It is estimated that other earnings and exchange gains and losses will also drag down the company's net profit to mother. 1) The company's biodiesel enjoys immediate VAT refunds, sales revenue is reduced, and other income is estimated to have decreased; 2) The company's non-recurring profit and loss in 2023 was -27.34 million yuan, with reference to 2023Q1-Q3 investment income loss of 34.44 million yuan, which is mainly estimated to be a loss in forward foreign exchange transactions.

Looking ahead to the future market for biodiesel made from waste oils: 1) Focus on the progress of the EU anti-dumping investigation: According to the European Commission's disclosure, the review is expected to be initially decided 7-8 months after filing and a final ruling 13-14 months after filing; 2) In the long run: biodiesel made from waste oils and fats has both reduced carbon emissions and is not competitive with the public, and the demand side remains strong in the context of carbon emission reduction; the application of long-term biofuels in aviation and shipping is expected to further open up room for growth.

The company actively responds to various investigations and carries out biodiesel sales business through overseas subsidiaries to ensure the sustainability of production; it has signed a strategic cooperation framework agreement with Sinopec CNOOC Fuel Supply to strengthen biodiesel cooperation in marine fuel oil and other fields. It is expected that the commissioning of the hydrocarbon-based biodiesel project (200,000 tons) and the launch of biological ships will bring about flexible performance. The company's net profit due to mother in 2023-2025 is expected to be 0.82/122/256 million yuan, PE is valued at 42.1x/28.2x/13.5x, maintaining an “increase in holdings” rating.

Risk warning

1. The market pattern of the upstream raw materials industry has undergone major changes, and the difficulty of purchasing raw materials has increased; 2. EU market demand falls short of expectations.