Description of the event
On the evening of March 14, 2024, Kaisheng New Materials released its 2023 annual report. The company's revenue in 2023 was 987 million yuan, down 2.33% year on year; net profit to mother was 158 million yuan, down 32.63% year on year; 2023 Q4 revenue was 259 million yuan, up 3.70% year on year, up 9.75% month on month; net profit to mother was 24.35 million yuan, down 46.88% year on year, down 20.30% month on month.
Sulfoxide is weak, and the company's performance is under pressure in the short term
The reduction in the price of sulfoxide combined with the increase in the price of raw materials put pressure on the company's performance in the short term. The company is the world's largest producer of sulfoxide chloride and a leading domestic aramid monomer company. Affected by low fluctuations in the prices of raw materials such as chlorine and sulfur, demand for sulfoxide chloride fell short of expectations in 2023, and sales prices remained low. According to Baichuan Yingfu data, the average price of sulfoxide chloride in 2023 was 1496.49 yuan/ton, a year-on-year decrease of 44.73%. In 2023, the average price of sulfur was 922.44 yuan/ton, down 56.12% year on year, and the average price of liquid chlorine was 170.22 yuan/ton, down 71.07% year on year. Prices of sulfoxide chloride and raw materials were low. Prices and gross profit elasticity were under pressure, and profit margins were compressed. In terms of inorganic chemicals, the 2023 company achieved operating income of 198 million yuan, a year-on-year decrease of 42.43%; gross margin was 27.94%, a year-on-year decrease of 16.15 pcts, mainly affected by falling prices of sulfoxide chloride and sulfuryl chloride. In terms of carboxyl chloride, the 2023 company achieved operating income of 661 million yuan, an increase of 20.56% year on year; gross margin was 36.88%, down 1.66 pcts year on year. In terms of hydroxychlorides, the 2023 company achieved revenue of 111 million yuan, an increase of 28.37% over the previous year; gross margin was 23.10%, mainly benefiting from the increase in the utilization rate of chloroether production capacity.
PEKK's volume is imminent, creating a new performance growth pole
PEKK materials have excellent properties and high added value, and are of great significance to the country's strategic development and industrial upgrading. However, due to the extremely high technical barriers of PEKK, only a few foreign companies in the world, such as Solvay and Arkema, have achieved mass production, and PEKK materials urgently need to be localized. The company began independent research on PEKK in 2013. It has been sharpened for ten years, broken foreign technology blockades, and successfully achieved the one-step method to produce PEKK. It has a clear cost advantage compared to the foreign two-step method, filling the gap in domestic PEKK production technology. At present, the company's 1000 tons/year PEKK production line is already in the phase of increasing production capacity and climbing. With the release of PEKK production capacity and promotion and application in the fields of downstream profiles, injection molding, carbon glass fiber and high-end semiconductor electronic materials, PEKK materials are expected to become a new profit growth point for the company in the future.
Investment advice
As a leading global sulfoxide company, the company is actively expanding downstream products in the industrial chain. It has gradually formed a three-dimensional industrial structure based on the sulfoxide chloride business, further extending to polymeric monomer/terephthalyl chloride, p-nitrobenzoyl chloride, etc. of high-performance aramid fibers, to the high-performance polymer material polyether ketone (PEKK) and related functional products. Future growth can be expected. As the company's main product, sulfoxide chloride, is at the bottom of the cycle, and the production schedule for the new products PEKK and LIFSI is adjusted. The company's net profit from 2024 to 2026 is estimated to be 221, 3.48, and 436 million yuan respectively, with year-on-year growth rates of 39.6%, 57.7%, and 25.4%, respectively. The pre-2024-2025 results were 272 and 503 million, respectively. The corresponding PE is 30, 19, and 15 times, respectively. Maintain the company's “buy” rating.
Risk warning
(1) The risk that project construction progress falls short of expectations;
(2) The risk that project approval progress falls short of expectations;
(3) The risk of large fluctuations in raw material prices;
(4) The risk of a sharp drop in product prices.