Description of the event
The company released its 2023 annual report, achieving revenue of 27.26 billion yuan (-9.9% YoY), achieving vested net profit of 3.58 billion yuan (-43.1% YoY), and realized attributable deducted non-net profit of 3.70 billion yuan (-42.3% YoY). Among them, Q4 achieved revenue of 7.91 billion yuan in a single quarter (+9.4% YoY, +13.3% YoY), realized net profit of 650 million yuan (-14.1% YoY, -46.7% YoY), and realized non-net profit of 8.0 billion yuan (-14.5% YoY, -33.9% YoY). In 2023, the company plans to pay a cash dividend of 0.60 yuan (tax included) per share.
Incident comments
In the fourth quarter of the off-season, product prices are under pressure. Prices, the company's main products are urea, DMF, adipic acid, acetic acid, octanol, caprolactam, nylon 6, melamine, DMC (dimethyl carbonate), oxalic acid 23Q4. The market prices changed -1.1%, -5.6%, -3.3%, -11.4%, 6.3%, 1.0%, 1.8%, 1.2%, -7.8%, -3.4%. Sales, sales in the organic amine and new energy sectors fluctuated. The production volume of the Jingzhou base led to a sharp increase in sales of fertilizer and acetic acid. In 23Q4, sales volumes of the four changed by 5.7%, -9.2%, 29.1% and 76.5%, respectively. Costs. The market prices of the company's main raw materials bitumen, pure benzene, and propylene changed 5.0%, -3.1%, and 3.3% month-on-month. Demand for coal was strong during the heating season, and prices increased month-on-month, leading to an increase in cost pressure. 23Q4's gross profit margin was 17.8%, down 6.6 pct from month to month.
Demand is sluggish during the peak season, and the future is expected. The company's main products are urea, DMF, adipic acid, acetic acid, octanol, caprolactam, nylon 6, melamine, DMC, oxalic acid 2024Q1 (as of 2024.3.24). Market prices changed -8.4%, -4.3%, 8.3%, -7.1%, 1.3%, 4.5%, 4.1%, -5.1%, -5.1%, -5.1%. Looking ahead to the future market, with steady growth in agricultural demand and supply-side constraints, urea can still maintain reasonable profits; the downstream market with steady DMF growth will gradually absorb excess capacity, and a better competitive pattern is expected to bring about market reshaping; Driven by new demand such as downstream PBAT, PA66, and adipitrile localization, profits are expected to pick up; price fluctuations on the supply side of acetic acid cause large price fluctuations. As the industry actively controls supply and demand improves, the bottom price of melamine is expected to improve; melamine is expected to improve at the bottom of the price; Downstream demand gradually recovered; DMC/oxalic acid downstream new Energy demand is promising, and the new production capacity is expected to be gradually digested. The market prices of the company's main raw materials bitumen, pure benzene, and propylene changed -9.7%, 8.6%, and -2.6% month-on-month in 2024Q1. Overall, the company is currently at the bottom of the cycle. As terminal demand continues to improve and cost-side pressure weakens, the business situation is expected to continue to recover.
New projects continue to be implemented, and we continue to be optimistic about the company's future growth in the medium to long term. In the context of limited coal indicators, the Texas headquarters is actively developing new downstream fine chemical products, increasing product added value, and accelerating the nylon 66 high-end new material project. The second base in Jingzhou has opened up a new phase of growth, and a series of projects have been launched to support long-term growth. Currently, the first phase of the Jingzhou project has been successfully completed, and part of the second phase has been established, including an annual output of 200,000 tons of BDO, 160,000 tons of NMP and 30,000 tons of PBAT biodegradable materials integration projects, 100,000 tons/year acetic anhydride project, and optimization and upgrading of melamine resin monomer materials and products.
The company has leading production engineering capabilities, and its products have significant cost advantages. The proposed investment projects of the Dezhou headquarters and Jingzhou base support future development. A diversified product portfolio may reduce operating fluctuations to a certain extent. Net profit attributable for 2024-2026 is estimated to be $48.7/56.2 billion yuan, respectively, maintaining the “buy” rating.
Risk warning
1. The recovery in downstream demand fell short of expectations;
2. The progress of the new project is lower than expected.