Core views

The company's performance in '23 was basically the same year on year, improving month over month in 23Q4. Sales resumed growth in '23, unit profitability was further strengthened, and the electrical and automotive sector grew significantly. The company focuses on maintaining high gross profit margins, thanks to its focus on high-end markets and brand customers. In '23, due to the reduction in raw material prices, the company's profitability further increased. The annual gross profit margin was 33.8%, +5.8pct. The company's largest downstream sector was power tools, which are nearing completion, and the 24-year order is expected to be repaired. At the same time, the company actively explores application areas and customers in the electrical and automotive industry. It has achieved remarkable results in 23 years, with revenue +37%/19% year-on-year, and is expected to continue to contribute significant growth in '24. The company's 24-year business target is to achieve revenue of 700 million yuan, +38% year-on-year, and is expected to return to a high growth trend.

occurrences

Company discloses 2023 annual report, 23Q4 month-on-month improvement

The company achieved revenue of 506 million yuan in 2023, a year-on-year decrease of 1.97%; realized net profit of 115 million yuan, an increase of 1.69% over the previous year; realized net profit of 100 million yuan after deduction, a year-on-year decrease of 0.70%. Among them, 23Q4 achieved revenue of 142 million yuan, an increase of 11.13% over the previous month; realized net profit of 0.32 million yuan, an increase of 5.29% over the previous month; and realized net profit of 0.28 million yuan after deduction, an increase of 7.77% over the previous month.

Brief review

Sales resumed growth in '23, unit profitability was further strengthened, and the electrical and automotive sector grew significantly

The company's gross profit for 23 years was 171 million yuan, a slight increase of 3.2% over the previous year. The total four fees were 52.67 million yuan, +24.28 million yuan. The sales/management/ R&D/finance expenses ratio was 2.8%/3.9%/5.0%/-1.3%, -0.03/+0.61/+0.19/+4.13pct.

The company's total product output in '23 was 23,300 tons, +4.8% year on year, and total sales volume was 22,400 tons, +6.9% year over year. The company's two main products, high-performance modified nylon (PEMARON) and high-performance modified polyester (AUTRON), sold 11,200 tons/0.72 million tons, -0.2%/+19.5% year-on-year, with average prices of 24,500 yuan/ton and 221,000 yuan/ton, -4.3%/-14.0% year-on-year, and gross margin increased by 6.0 pct/5.6 pct to 39%/24% year over year. By industry, the company achieved revenue of 310 million yuan/116 million yuan/59 million yuan respectively in the power tools, household appliances and automobile industries in '23, a year-on-year change of -13.0%/+37.2%/+18.5%, and gross margins in the three major sectors were 35.3%/30.6%/33.5%, respectively, +6.97/+1.63/+8.1 pct.

Since the company's pricing model is a cost plus and there is a long pricing cycle, raw materials PA6, PP, PC, and PA66 accounted for 28.4%/10.4%/7.7%/3.2% of the company's raw material purchases, and the average price in 2023 was -7.2%/-9.3%/-18.2%/-26.4%, which led to an improvement in gross margin. 23Q4 comprehensive gross profit margin was 35.1%, +5.2pct year over month. 2024 will help the company maintain its profitability, given the uneven supply and demand for bulk raw materials. The company focuses on maintaining a high gross profit margin, thanks to the company's focus on the high-end market, which is an example of high-end customers in the power tool market. The company has successfully developed products that can compete with international giants such as BASF, DuPont, and LANXESS, and has become one of the main suppliers of Stanley Patek, the world's largest manufacturer of power tools. The power tool industry and other high-end application fields give the company a significantly higher gross margin level than ordinary modified plastic products, making the company's profitability outstanding.

The development of the electrical appliance and automobile sector is compounded by the recovery of demand for power tools. In 2023, it is expected to return to the largest downstream sector for high-growth companies as power tools. Demand in 2022 to 2023 will be pressured by the departure of major downstream customers. Considering that Stanley Patel revealed in its 23rd mid-year report that the 23-year inventory removal target was US$7-900 million, which was basically achieved by the end of 23Q3, the company's orders are expected to be gradually repaired. The company actively explores downstream fields and customers in the field of household appliances and automobiles. The results were remarkable in 2023. Among them, the household appliances sector mainly grew in the 3C sector, and is expected to continue to contribute significant growth in 24 years. Taken together, the company's 24-year business target is to achieve sales revenue of 700 million yuan, +38% year-on-year, and is expected to return to a high growth trend.

The capacity expansion of the fund-raising project will gradually be implemented in 2024. The company will continue to increase R&D investment and introduce high-end sales personnel. The company currently has a modified plastic production capacity of 30,000 tons and higher actual production capacity through technical improvements in the future (before listing, there were 10 production lines, of which 6 production lines with high production capacity are flexible production lines, which can be shared to produce high-performance modified nylon, high-performance modified polyester, and engineered polyolefin). The company's capacity expansion project plans to produce 60,000 tons of modified plastics and 1,500 tons of plastic products, for a total of 8 production lines. Four of these production lines are expected to be installed, commissioned, and put into use in Q3 of '24. At that time, the company's production capacity is expected to double, and new production capacity will continue to be released in the future. The company continues to increase investment in R&D and introduce high-end sales talents to help grow in the future. In 2023, the company's R&D expenses reached 25.47 million yuan, and the R&D expenditure rate reached 5.03%. The company's projects under construction amounted to 220 million yuan, an increase of 209% over the previous year.

As the company's R&D center is completed and put into operation, the company's R&D investment and talent reserves will further increase dramatically. At the same time, the company will also actively introduce high-end sales talents to further increase the share of high-quality customers or seize new major customer markets.

Taken together, the company's product profitability is outstanding, and it is expected to return to high growth in 24 years:

We expect the company's 2024-2026 net profit to be 1.59, 2.15, and 293 million yuan, EPS of 1.60, 2.17, and 2.95 yuan respectively, and the target price will remain 39.25 yuan, maintaining a “buy” rating.

Risk warning: Overseas macroeconomic growth continues to decline (Stanley Baide, the company's largest customer, is a leading global company in the power tool field, and there is a certain correlation between product sales and overseas economies. Therefore, with cyclical macroeconomic fluctuations at home and abroad, the downstream industry's demand and price acceptance capacity for the company's products may decline, which will adversely affect the company's future business development and business performance); raw material costs have risen above expectations (the company's main raw materials include polyamide, polypropylene injection particles, polycarbonates for injection molding, PBT, etc., which are greatly affected by the prices of upstream petrochemical products, and the bargaining cycle of the company and downstream customers is too long. If raw materials surged beyond expectations in the short term, it will put pressure on the company's gross margin).