Description of the event
The company released its 2023 annual report, achieving full year operating income of 2.82 billion yuan (-7.6% YoY), achieving net vested profit of 610 million yuan (+3.1% YoY), and realized 570 million yuan in attributable deducted non-net profit (+3.3% YoY). Among them, Q4 achieved revenue of 660 million yuan in a single quarter (-34.0% YoY, -18.5% YoY), realized attributable net profit of 160 million yuan (YoY -30.7%, -22.6% YoY), and realized non-net profit of 140 million yuan (-37.2% YoY, -26.8% YoY). The company's basic earnings per share in 2023 are $2.6, and it is planned to distribute a cash dividend of $13 (tax included) for every 10 shares.
Incident comments
The company continues to be deeply involved in the international market, and revenue declined slightly due to anti-globalization. In 2023, the company's revenue fell 7.6% year on year. The production and sales volume of lubricant additives reached 134,000 tons (-11.6% year on year) and 136,000 tons (-4.7% year on year), respectively. Its export revenue reached 2.02 billion yuan, accounting for 71.7% of revenue. The slight decline in the company's revenue is mainly due to the rise of anti-globalization trends in recent years, especially when combined with geopolitical conflicts, posing challenges to the global lubricant additive supply chain. In 2022, the company's downstream customers increased their procurement volume based on supply chain security factors, while in 2023, some customers were mostly out of inventory. The company's gross margin for the year was 35.0% (+4.9 pct year over year). The company's annual expense ratio was 11.0% (+2.1 pct year over year). Among them, sales, management, finance and R&D expenses changed by -0.1, +0.6, +0.8 pct year over year, respectively. Among them, the increase in financial expenses was mainly due to the fact that the US dollar exchange rate was stable this year, leading to a decrease in exchange earnings.
The company's lubricant additive production capacity continues to grow. In terms of production capacity, by the end of 2023, the company had an annual production capacity of 200,000 tons of lubricant additives, an increase of 30,000 tons/year over 2022. Currently, the annual production capacity under construction is 550,000 tons. Furthermore, by the end of 2023, the company's annual production of 460,000 tons of lubricant additive products had reached 6.9%, and the progress of the annual production of 150,000 tons of lubricant additive products had reached 67.3%, all of which are scheduled to be ready for use by the end of 2025. As the company's production capacity continues to advance and continues to transition to compound agents, revenue and performance are expected to usher in significant growth.
Single dose categories are complete, and API certification continues to be promoted. The company's product line covers various series such as cleaning agents, dispersants, ZDDP, high temperature antioxidants, etc., covering a complete range of mainstream additives. A complete range of single doses is a solid foundation for the company to enter the mainstream market. In terms of compounds, the company has now independently mastered the formulation process of CD grade, CF-4 grade, CI-4 grade, and CK-4 diesel engine oil compound agent, SE grade, SF grade, SG grade, SJ grade, SL grade, SM grade, SN grade, SP grade gasoline engine oil compound formulation process, natural gas engine oil compound, motorcycle oil compound, marine system oil, marine cylinder oil compound, marine cylinder oil compound, marine cylinder oil compound, anti-wear hydraulic oil compound, gear oil compound, etc., including CI-4, CK-4, SN grade SP, SN grade SP agent It has passed the bench test of an authoritative third party abroad.
The company's transition strategy to compound agents is developing steadily. In 2023, the company steadily promoted the promotion of compound products, increased the development and entry of core customers, deployed high-quality resources, actively connected with customers, accelerated the international certification of compound products and internal customer evaluation and testing work, and achieved a breakthrough in core customer entry. Compound agent revenue accounted for 66.5%, and the transformation and upgrading developed steadily.
Maintain a “buy” rating. The company is a leading supplier of lubricant additives in China and a major supplier of carbonless paper colorants in the world. It has a complete range of single agent types and R&D and production capabilities for key raw materials. In 2013, it began entering the downstream compound agent business with higher added value. The product technology is leading in the country, and the compound continues to pass the bench tests of authoritative foreign third parties. As the company's production capacity continues to be released, the company is expected to usher in rapid development. The company's net profit for 2024-2026 is estimated to be RMB 760 million, RMB 970 million and RMB 1.29 billion, respectively.
Risk warning
1. The price of upstream raw materials has risen;
2. Downstream demand falls short of expectations; the commissioning of new projects falls short of expectations.