Introduction to this report:
The company's 23Q4 performance declined slightly from month to month, but the medium- to long-term growth trend did not change, maintaining the “gain” rating.
Key points of investment:
Maintain an “Overweight” rating. Considering the complicated international situation, the company's export sales growth rate has slowed down. EPS for 24-25 was reduced to 2.46/3.11 yuan (originally 2.99/3.65 yuan), respectively, and the 26-year EPS was added to 3.68 yuan. Referring to comparable companies, PE was given 22.69 times in 24 years, and the target price was reduced to 55.70 yuan (originally 60.30 yuan).
There was a slight year-on-year increase in results in '23 and a year-on-month decline in Q4. In 2023, the company achieved a total revenue of 2,816 billion yuan (-7.57% YoY), and achieved net profit of 606 million yuan (YoY +3.12%); in a single quarter, 2023Q4 achieved revenue of 663 million yuan (YoY -33.97%, -18.55%) and net profit to mother of 156 million yuan (YoY -30.71%, YoY -22.58%). In terms of cash flow, the company's net cash flow from operating activities was 640 million yuan (-2.80% YoY). The reason why the company's Q4 performance was weak year over year was that customers were less active in purchasing due to inventory digestion.
In January-February, China's lubricant additive exports declined year on year, leaving the long-term growth logic unchanged. According to customs data, in January-January 2024, China exported 32,900 tons of lubricant additives, or -11.54% year on year. The average export price was 21,400 yuan/ton, -8.83% year on year. Specifically, in January 2024, China's lubricant additive exports showed an upward trend; in February, due to the impact of the Spring Festival, exports declined; however, in 23, China's lubricant additive exports were still +3.17% year-on-year, without changing the long-term growth logic.
Target well-known overseas companies and expand overseas market segments. According to Wind, Afton's parent company Newmarket achieved revenue of 2,698 billion US dollars in 23, -2.40% year over year; realized net profit of 389 million US dollars, +39.11% year over year, and gross margin of 28.63%. There is still a gap between the company and well-known overseas companies, and is developing global market segments through cost-effective products and services.
Risk warning: Market development falls short of expectations, and raw material prices have risen.