The company released its 2023 annual report: During the reporting period, the company achieved revenue of 1,379 million yuan (YoY -14%), net profit attributable to mother 235 million yuan (YoY -44%), and net profit not attributable to mother of 206 million yuan (YoY -49%). In 2023, the company's gross sales margin was 26.07% (YOY-9.93pct), net profit margin 17.04% (YOY-9.40pct), and sales, management and financial expenses ratio 2.58% (YOY-1.15pct).

Among them, in the 23Q4 single quarter, the company achieved revenue of 355 million yuan (YoY -11%, QoQ +8%), net profit due to mother of 0.35 million yuan (YoY -65%, QoQ -39%), and net profit after deducting non-return to mother of 0.29 million yuan (YoY -71%, QoQ -43%). The main reasons: 1) fluctuations in raw material prices; 2) the impact of Q4 expenses. 23Q4's gross sales margin was 20.47%, with year-on-month changes of -14.79pct and -7.41pct, net profit margin 9.89%, and year-on-month changes of -15.63pct and -7.74pct, respectively. The company plans to distribute a cash dividend of 4 yuan (tax included) to all shareholders for every 10 shares.

Sales of maleic anhydride derivatives continued to grow. Prices declined significantly due to fluctuations in raw materials and supply growth, and profitability narrowed sharply, putting pressure on performance. Since 2023, the company has actively responded to changes in the business environment, deepened the supply chain layout, and released production capacity for new installations. According to the data disclosed in the company's annual report, maleic anhydride derivatives produced 80,600 tons (YoY +15%), with sales volume of products used in the wind power sector accounting for more than 10% of the overall sales volume of maleic anhydride derivatives, achieving revenue of 995 million yuan (YoY -19%), with an average product price of 12,000 yuan/ton (YoY -33%) and a gross profit margin of 23.30% (YoY- 33%) 14.85pct). The sharp decline in the price of maleic anhydride derivatives in 2023 is mainly due to: 1) the significant year-on-year decline in the prices of raw materials such as maleic anhydride, butadiene, and C5; 2) competition intensified due to the release of new production capacity in the industry. Looking back, we believe that there is strong certainty on the future demand side of maleic anhydride derivatives, especially in electrical insulation and composites. The company is a leading domestic maleic anhydride derivative company with a large scale and variety of products, and currently has a production capacity of 71,000 tons. Due to factors such as the external macro environment, internal environmental changes in the industry, and extreme weather, the implementation schedule has been delayed, and the construction progress has been extended from the original plan. Therefore, the company announced that it intends to extend the date when the project reaches the intended usable state from September 30, 2023 to June 30, 2024.

The functional intermediates business is progressing steadily, and profitability continues to increase. In the future, it is expected that volume will accelerate with the boom in OLED. The company's main products of functional intermediate materials are OLED materials, mainly fluorene, carbazoles, etc. According to data from Qunzhi Consulting, with the intensive release of mid-range and high-end models in the second half of 2023, particularly the return of Huawei and the release of the Apple iPhone 15 series, the popularity of the high-end market was boosted by superimposed flexible OLEDs. In 2023, global flexible OLED panels were shipped about 530 million pieces, an increase of about 33.3% over the previous year, and it is expected that the high growth rate will continue to be maintained in 2024. In addition, about 150 million rigid OLED smartphone panels were shipped in 2023, a year-on-year decrease of about 21.5%. From a structural perspective, global rigid OLED smartphone panels were shipped about 85.5 million in the second half of the year, an increase of 4.1% over the previous year. Demand for rigid OLED smartphone panels is expected to increase in 2024, and there is a risk that structural supply and demand will be tight. In 2023, the company's functional intermediate materials business achieved annual revenue of 231 million yuan (YoY +9%), gross profit margin of 45.90% (YoY+10.52pct), and a significant increase in profitability. Looking ahead, the business is expected to accelerate in line with the boom in the OLED market.

Investment analysis opinion: The 23Q4 single performance fell short of expectations. The Gulei base project was delayed, and the company's 2024-2025 net profit forecast was lowered to 2.89 billion yuan and 361 million yuan (original values of 3.42 billion yuan and 445 million yuan), and the net profit forecast for 2026 was 447 million yuan. According to Wind's consistent forecast, comparable companies Ruilian New Materials and Wanrun Co., Ltd. had an average PE of 16X in 2024. The current market value corresponds to PE 13, 11, and 9X, respectively, maintaining the “increase” rating.

Risk warning: 1) downstream demand falls short of expectations; 2) progress of new projects falls short of expectations; 3) raw material prices fluctuate greatly.