Event: The company released its 2023 annual report. In 2023, the company achieved revenue of 1,235 billion yuan, a year-on-year decrease of 12.47%; realized net profit of 96.14 million yuan, a year-on-year decrease of 322%; realized net profit after deduction of 113 million yuan, a year-on-year decrease of 796%. With 2023Q4, the company achieved revenue of 343 million yuan in a single quarter, up 14.57% year on year and 4.67% month on month; realized net profit to mother of 38.98 million yuan, narrowing the year-on-year loss by 23.44 million yuan, and increasing the month-on-month loss by 15.7 million yuan.

Comment:

The decline in photoinitiator prices is putting pressure on performance, and efforts are being made to increase market share. In 2023, the company's photoinitiator business revenue was 949 million yuan, a year-on-year decrease of 16.1%; the average sales unit price of the company's photoinitiators was 49,400 yuan/ton, a year-on-year decrease of 29.3%. Due to the decline in the sales price of photoinitiators, the gross margin of the company's photoinitiator business fell 10.5 pct to 10.3% year on year in '23. Against the trend, the company achieved continuous growth in photoinitiator sales by promoting lean process improvement, exploring the potential for cost reduction and efficiency, and implementing flexible marketing strategies, and the corresponding market share increased significantly. The company sold 192,000 tons of photoinitiators in '23, an increase of 18.7% over the previous year. In addition, on the photoinitiator supply side, the subsidiary Shandong Jiuri invested and built a single unit transformation project with an annual output of 2,500 tons of light-curing materials, which was gradually put into operation in October 2023. The company still maintains a high R&D intensity. In '23, the company's R&D expenses were 76.43 million yuan, down 9.6% year on year; R&D expenses rate was 6.2%, up 0.2 pct year on year. In terms of patents, the company obtained 23 new authorized patents in '23, including 13 invention patents and 10 utility model patents.

Photosensitizers and photoresists are supplied in small quantities, and efforts are made to enhance the competitiveness of the company's products. The company uses Jiuri Semiconductor as the R&D platform to carry out research and development of semiconductor G/I line photoresists and panel photoresists; uses Dajing Information and Dajing New Materials as production bases to manufacture photoresist raw materials and photoresist products such as photosensitizers. Currently, Dajing Information has a photosensitizer production capacity of 600 tons/year, and Dajing New Materials is building a photoresist production capacity of 4,500 tons/year. Of these, Dajing New Materials photoresist production capacity is expected to be completed in August 2024. The company has now achieved small-batch supply of photoresist and photosensitizer products. Among them, photoresist products achieved a sales breakthrough of “zero” in 2023.

Profit forecasting, valuation and ratings: Due to falling prices of photoinitiator products, the profitability of the company's main business weakened, and performance was under pressure. Considering that the price of photoinitiator products has declined and is currently still relatively low, we lowered the company's 24-25 profit forecast and added a 26-year profit forecast. The company's net profit for 24-26 is estimated to be 0.17 (down 83%)/0.43 (down 67%)/89 million yuan, respectively. As downstream demand improves, the company's photoinitiator prices are expected to gradually stabilize. At the same time, with the gradual introduction of photosensitizers and photoresist products, it is expected to bring new increases to the company's performance, and we maintain the company's “increase” rating.

Risk warning: Product and raw material prices fluctuate, downstream demand falls short of expectations, industry competition risks, capacity construction falls short of expectations, product verification risks.