2023 results are largely in line with market expectations
The company announced its 2023 results: revenue of 27.26 billion yuan, -9.9% year-on-year, net profit of 3.65 billion yuan, corresponding to earnings per share of 1.72 yuan, a year-on-year decrease of 42%, mainly due to high coal prices and declining product sentiment. The results are generally in line with market expectations. In 2023, net operating cash flow was 4.72 billion yuan, cash dividends (including tax) of 1.27 billion yuan, with a dividend ratio of 35.6%, +8.6pct year-on-year.
In 4Q23, the company achieved revenue of 7.91 billion yuan, +9.4% YoY, +13.3%; net profit to mother of 650 million yuan, -14.1% YoY, -46.7% month-on-month, net profit of 80 million yuan (YoY), -14.5% YoY, and -33.9% month-on-month. Gross sales margin and net margin were 17.8%/8.8%, respectively, down 6.6/8.6pct. 4Q23's sales volume of products related to new energy materials, chemical fertilisers, organic amine series products/acetic acid and derivatives was -9%/+29%/+6%/+77%, and the unit sales price was +4%/+10%/-1%/-9% month-on-month respectively. The month-on-month increase in product sales mainly contributed to the commissioning of the company's second base. Affected by changes in supply and demand, the prices of organic amine and acetic acid products decreased month-on-month.
Development trends
The Jingzhou base was profitable when it was put into operation, and non-recurring profit and loss affected 4Q profit. In November 2023, the company announced that the Jingzhou subsidiary's park gas power platform and synthetic gas comprehensive utilization project will be put into operation. The main products are urea, acetic acid, DMF, methylamine, etc. The first phase of the Jingzhou project achieved operating revenue of 1.25 billion yuan, net profit of 155 million yuan, and a net profit margin of 12.4% in 2023. According to the announcement, the company involved litigation settlement payments of 440 million yuan, and amortized 154 million yuan in 2023, which had an impact on 4Q profits.
The two bases are developing simultaneously, and capital expenditure is still high. In 2023, the first phase of the Jingzhou base project was completed and put into operation, and capacity replacement projects such as high-end solvents and coal-fired boilers at the Dezhou headquarters were successfully put into operation. In 2024, Adipic Acid, Oxalic Acid, and Cyclohexanol are each 200,000 tons/year, and projects such as technical improvement and production expansion are underway; Jingzhou is building projects such as urea, BDO, NMP, formic acid, melamine, and by-product carbonamines. We estimate that the total investment in these projects will exceed 9 billion yuan.
Downward cost support for coal prices weakened, and additional production capacity contributed to increased profits. According to Baichuan Yingfu, as of March 30, 2024, the Qinhuangdao thermal coal (Q: 5,500) market price was 850 yuan/ton, down 7% from the beginning of the year. Looking ahead, we believe that the price center of the company's main raw material, coal, is expected to decline further, product sentiment and cost support will change in the same direction, and the overall profit margin level is expected to be basically maintained. The company's profit growth mainly comes from production contributions from new projects.
Profit forecasting and valuation
Due to declining product sentiment, we lowered our 2024 net profit 15% to 4.72 billion yuan, and introduced a 2025 performance forecast of 5.89 billion yuan, which corresponds to a price-earnings ratio of 11.8/9.4 times 2024/25. We maintained an outperforming industry rating, but due to a downward shift in the market valuation center, we lowered our target price by 16.7% to 35 yuan, corresponding to the 2024/25 price-earnings ratio of 15.7/12.6 times, and there is 34% room to rise compared to the current stock price.
risks
The project's commissioning schedule fell short of expectations, export demand fell short of expectations, and product prosperity was sluggish.