Description of the event
The company released its 2023 annual report. In 23, the company achieved revenue of 2,816 billion yuan, -7.57% year on year, realized net profit of 606 million yuan, +3.12% year over year, and realized net profit of 569 million yuan after deduction, or +3.3% year on year. Of these, 23Q4 achieved revenue of 663 million yuan, -18.55% month-on-month, realized net profit of 156 million yuan, or -22.39% month-on-month, and realized net profit after deduction of 143 million yuan, or -26.67% month-on-month.
Incident reviews
Net profit to mother increased by 3.12% year on year, and raw material expansion effectively reduced costs. The rise of anti-globalization trends compounded geopolitical conflicts, posing challenges to the global lubricant additive supply chain. In '23, downstream customers increased procurement volume based on supply chain security and stable supply risks, leading to a state of inventory removal. The company's revenue declined slightly, and net profit to mother increased by 3.12% over the same period last year. In terms of production and sales, sales of lubricant additives were 136,400 tons in '23, -4.65% year on year, output 133,500 tons, -11.58%; sales volume of carbonless paper color developer was 0.47 million tons, -16.93% year on year, output 0.49 million tons, -5.22% year on year, and sales scale of carbonless paper color developer products declined. The gross profit margin of lubricant additives was 35.22%, up 4.5 pct year on year; the gross profit margin of carbonless paper color developer was 32.42%, up 8.52 pct year on year, and the overall gross profit margin was 35%, up 4.87 pct year on year. The company continues to expand the self-production of core raw materials and independently produces dodecyl phenol through a self-developed ion exchange production process to reduce costs.
The export volume and price of lubricant additives rose sharply in 2023, and imports declined. According to customs data, China exported 141,000 tons of lubricant additives in December 2023, -13.12% month-on-month, and the average export price was 2,1690 yuan/ton, +0.56% month-on-month. From January to December 2023, the total export price was 208 million tons, +3.17% year on year, and the average export price was 22,816 yuan/ton, +0.48% year on year. In December, 191,000 tons of lubricant additives were imported, +11.76% month-on-month, and the average import price was 30,392 yuan/ton, +1.34% month-on-month. From January to December 2023, a total of 202,900 tons were imported, -19.91% year-on-year, and the average import price was 29,990 yuan/ton, +12.79% year-on-year. In '23, China's exports of lubricant additives showed a sharp rise in volume and price, and imports of lubricant additives declined.
Compound product certification continues to break through, and transformation and upgrading are developing steadily. The company has stepped up development and access to core customers, accelerated the international certification of compound products and internal customer evaluation and testing work, and obtained lower dosage and more energy-efficient bench test reports issued by third-party authoritative testing agencies. CI-4, CK-4, SN, and SP grade compounds have passed authoritative third-party bench tests from abroad, and achieved a breakthrough in core customer entry. Compound revenue accounts for 66.52%, and the transformation and upgrading are developing steadily.
The company is investing 135 million yuan to build a new R&D center, which will further enhance the company's R&D strength.
Investment advice
We expect the company's net profit to be 701/8.79/967 million yuan respectively in 24-26, corresponding to the company's market capitalization of 10.5 billion yuan on March 26, and PE 15.1\ 12\ 10.9 times in 2024-2026, respectively, maintaining a “buy-B” rating.
Risk warning
Risk of price increase of raw materials: Since the main raw material components of lubricant additives are base oil, isooctanol, phosphorous pentasulfide, isobutene sulfide, α-olefin, etc., these materials are mainly downstream petrochemical products and are positively correlated with crude oil prices. If crude oil rises rapidly in the short term, it can easily cause a sharp increase in the price of related raw materials, which has an impact on product profits. Overseas market policy risk: Due to differences in import and export tariffs on lubricant additives in different regions, if overseas tariffs on lubricant additive products exported from China are raised, it will cause a certain decline in external demand in the industry. Risk of not being able to successfully pass certification for compound agent products: The company plans to vigorously promote API certification for compound products. The API certification threshold is high, expensive, and difficult to pass. If the certification process does not proceed smoothly and successfully pass, on the one hand, the large costs will be sunk costs, and on the other hand, it will also waste precious time, and the opportunity cost is huge.