Incident: The company recently released its 2023 annual report. During the period, it achieved revenue of 6.78 billion yuan, -17% year-on-year, and realized net profit of 446 million yuan, or -49% year-on-year. In 2023, the company plans to distribute a dividend of 0.80 yuan (tax included) to all shareholders for every 10 shares based on the company's total share capital of 1,335,568,000 shares. A total cash dividend of 106,845,440 yuan will be distributed. No bonus shares will be given, and the share capital will not be transferred from the Provident Fund.
The decline in product prices has led to a decline in profits, and EVA prices are now showing signs of steady recovery since the beginning of the year.
Affected by weak macroeconomic recovery and pressure on downstream market demand, etc., the company's product prices declined. The company's main products include ethylene vinyl acetate copolymer (EVA), polypropylene special materials, and ethylene oxide derivatives. The revenue share in 2023 was 29.87%, 25.11%, and 12.22% respectively, reaching a total of 67.2%; of these, EVA gross margin was 40.95%, down about 10% year on year, putting pressure on performance.
According to the company's annual report, China's EVA production in 2023 was 2.154 million tons, and the apparent consumption was 3.339,000 tons, an increase of 20.8% over the previous year. The dependence on imports was 41.7%, and large imports are still needed. In 2023, the company produced 160,500 tons of EVA products, sold 160,200 tons, and a capacity utilization rate of 104.49%, achieving full production and sales. According to Baichuan Yingfu data, as of March 2024, the price of Lianhong EVA628 photovoltaic products was 13,500 yuan/ton, up 2,400 yuan/ton from the beginning of 2024; the gross margin of the EVA industry was 32.83%, up 5.20% from the beginning of 2024. With 90,000 tons/year VA devices put into operation in 2023, the company can achieve complete self-supply of EVA raw materials, and subsequent EVA or stable repair.
The company continues to focus on the direction of new materials, adhere to innovation-driven development and high-quality development, and carry out high-end, differentiated and refined layout.
In the field of new energy materials: The company is a leading enterprise in the EVA photovoltaic film industry, and has developed POE materials and new energy battery materials; the company has laid out new energy lithium battery series materials such as UHMWPE, lithium carbonate solvents, lithium battery additives, etc., and will form an industrial layout of various types of lithium battery materials in the future, with remarkable synergy advantages. During the reporting period, the company and Beijing Weilan New Energy Technology Co., Ltd. jointly established a holding subsidiary Lianhong Weilan to develop, produce and sell key functional materials for new batteries such as solid-state batteries and semi-solid state batteries, further enriching the company's product system in the field of new energy battery materials and improving the company's new energy business layout. The company completed a 15% equity investment in Wenzhou Natashu New Energy Technology Co., Ltd. to lay out sodium-ion batteries and related materials.
Biomaterials field: Relying on self-developed technology, the company implements multiple product layouts such as PLA and PPC, with outstanding industrial chain advantages; in the field of special fine materials: the company focuses on high-purity electronic specialty gas and continues to expand high-margin EOD series products.
Electronic materials direction: Build a composite distillation and quantitative calculation platform, develop various electronic grade special gas process technologies, and enrich the company's layout in the field of electronic specialty gases.
Currently, the company's main products, such as EVA photovoltaic film materials, EVA wire and cable materials, PP thin-wall injection molding materials, and EOD special surfactants, are in a leading position in the industry in market segments. The projects being built by the company include 200,000 tons/year EVA, 300,000 tons/year POE, 130,000 tons/year PLA, 300,000 tons/year PO, 50,000 tons/year PPC, 10,000 tons/year high-purity electronic special gas, and 4,000 tons/year lithium battery additives. The company has built a unique deep processing industry chain and continues to optimize the product structure. The industrial chain is long, the product structure is rich, the positioning is high-end, and the profitability and resilience to risks are strong.
Investment advice: Based on current product prices and future industry and company production capacity, we expect the company's net profit to be 5.66/6.41/1,042 million yuan in 2024/2025/2026, corresponding EPS of 0.42/0.48/0.78 yuan, corresponding to the current stock price PE of 38.79/34.25/21.07 times, maintaining a “buy” rating.
Risk warning: falling product prices, falling short of expectations in project commissioning, risk of industry overcapacity, downstream demand falling short of expectations, etc.