Profitability increased in 2023, and the new materials business accelerated development, maintaining a “buy” rating of 1.6 billion yuan (-2.1% year-on-year, same below), net profit attributable to mother of 203 million yuan (+8.5%), and net profit not attributable to mother of 198 million yuan (+17.5%). 2023Q4 revenue of 480 million yuan (+6.3%), net profit to mother of 83 million yuan (+2.6%), net profit margin 17.3%. The ultra-high short-term unit price of new materials was affected by the policy. We lowered 2024-2025 and added a profit forecast for 2026. The net profit for 2024-2026 is estimated to be 2.4/2.9/330 million yuan (previously 2.9/340 million yuan), corresponding to EPS 0.7/0.8/0.9 yuan. The current stock price corresponds to PE14.2/11.9/10.5 times PE. The second phase of intelligent transformation and efficiency improvement of the main business is expected to rise in production capacity and quality improvement in 2024. The nylon business accelerates investment and construction, and is optimistic that the company will become a new material application enterprise. Maintain a “buy” rating.
Stable wool business & clothing adjustment of customers and channels, high added value and intelligent transformation to enhance profitability Worsted woolen wool: 2023 revenue of 895 million yuan (-0.2%), volume/price -1.27%/+1.1%, capacity utilization rate +3.7 pct to 91% year over year, gross profit margin of 34% (+0.26pct) is mainly an increase in high value-added products. Clothing: Revenue of 585 million yuan (-16.2%) in 2023 was mainly due to customer and channel structure optimization, concentrated on leading customers and direct management, with a gross profit margin of 35.79% (+3.7pct). Increased export revenue and profitability: domestic/foreign revenue of $1,19/41 billion in 2023, -3.6%/+2.7% YoY, gross profit margin 36.25% (+0.85pct)/30% (+2.28pct).
Differentiated development of UHMWPE fiber phase II, and the new material nylon business accelerated investment in UHMWPE fiber: revenue of 90 million yuan (+363.2%) in 2023, with volume/price +439%/-14.1% to 1504 tons and 60,000 yuan/ton. Military use is expected to account for about 50%, with a gross profit margin of 19.9% (+3.98pct). The profitability of the finished products of the first phase of the project remained at a high level since it was put into operation. The second phase of the project was put into operation in August 2023, and production capacity continued to rise. The 2023 H1/H2 revenue was 0.25/65 million yuan, and the gross profit margin was 33.83%/14.59%. The second phase made progress in various product fields such as fine denier and colored yarn. The overall output is expected to be about 4,000 tons in 2024, and the quality of the second phase will gradually improve. Nylon: The 80,000-ton high-performance differentiated nylon filament project is progressing steadily. The core equipment manufacturer Oerlikon Bamag has strategically collaborated on equipment+production lines to promote the vertical expansion of the new materials industry chain.
Net interest rate after deduction in 2023 increased significantly, and operating capacity remained steady (1) Profitability: gross margin increased by 1.1 pct to 34.65% in 2023, and the period expense ratio was +0.1 pct to 17.5% year over year, with sales expenses ratio/management expenses ratio -1.7 pct/+1.1 pct to 8%/5.2%, net profit margin 12.7% (+1.2pct), net profit margin of 12.4% (+2.1pct). (2) Operating capacity: Inventory balance as of 2023 was 670 million yuan (+13.2%), inventory improvement, 220 days of inventory turnover (+26), net cash flow from operating activities was 220 million yuan (-6.7%), and cash and cash equivalents were approximately 500 million yuan (-26%).
Risk warning: Production capacity investment falls short of expectations, downstream demand is weak, and market competition intensifies.