Key points of investment:

Incident: Wharton Technology released its 2023 annual report, and the results were in line with expectations. Wharton Technology released its 2023 annual report. In 2023, it achieved operating revenue of 1.705 billion yuan, yoy +16.68%; realized net profit of 165 million yuan, yoy +13.64%; performance was in line with expectations.

Membrane products: Multi-faceted promotion, annual revenue increased 18% year-on-year. In terms of industrial membranes: Demand for downstream industrial water, stock replacement and upgrading, and new energy markets is growing, and the localization process continues to advance. The company explores the potential of new energy, seawater desalination, concentration and separation, municipal water supply, food and beverage segments. Household membranes: Grasp the trend of high-throughput development, the company strengthens cooperation with water purifier manufacturers to improve the efficiency of customized services. In terms of overseas markets, the company grasps the trend of growing regional market demand and diversification of customer demand, strengthens market development in key regions, optimizes overseas product structure, and achieves good growth in overseas sales.

Membrane products: Chavin Phase III gradually reached production, and the product structure continued to be optimized. The company previously designed membrane products with a production capacity of 23.3 million square meters.

In 2023, the company's Chavin Phase III project will gradually reach production, adding production capacity of 4.8 million square meters of polyamide composite reverse osmosis membrane materials, 40,000 seawater desalination reverse osmosis membrane modules, and 1.45 million high-throughput reverse osmosis membrane modules. This will help the company optimize its product structure and lay the foundation for improving market coverage.

Membrane separation: Continued investment to achieve large-scale orders of 100 million yuan and new breakthroughs in overseas markets. Annual revenue increased 78% year-on-year.

The company increased its investment in membrane separation engineering business resources, and continued to expand the application field of membrane separation projects in 2023. In addition to continuing to receive orders for special concentration separation and zero-emission resource recycling, it also received new orders in the fields of process water for mine sewage treatment, recycled liquid recycling, drinking water, etc., achieving 100 million yuan of large-scale project orders and new breakthroughs in overseas markets.

Vegetable fiber: Actively responding to the downturn in the industry, the overall impact of the company was relatively small, and annual revenue increased 3% year over year. The real estate industry is showing a sluggish trend. The furniture industry is under great pressure, and the mattress industry is fiercely competitive. The company actively responds to the operating pressure brought about by the macro environment, strengthens product research and development, and further optimizes product quality.

Investment analysis: The company's membrane product revenue is growing steadily, and the membrane separation business has entered a period of rapid development. We maintain the 2024-25 net profit forecast of 2.09/246 million yuan, and added the 2026 profit forecast of 285 million yuan. Currently, the corresponding PE price is 19/16/14 times, respectively, maintaining a “buy” rating.

Risk warning: Import substitution progress fell short of expectations; orders from emerging markets such as salt lake lithium extraction fell short of expectations; risk that the company received a regulatory letter from the Shenzhen Stock Exchange on March 8, 2023 (failure to comply with review procedures and information disclosure obligations due to cash management).