Incident: The company released its 2023 annual report. In 23, the company achieved operating income of 1,379 million yuan, a year-on-year decrease of 13.6%, and realized net profit of 235 million yuan, a year-on-year decrease of 44.3%. Among them, the company achieved revenue of 355 million yuan in a single quarter, a year-on-year decrease of 10.6%, a year-on-month increase of 8.1%, and realized net profit of 35 million yuan to mother, a year-on-year decrease of 65.4% and a decrease of 39.3% month-on-month.

The amount of maleic anhydride derivatives increased and decreased, and the company's performance declined in '23. The company focuses on the development and production of maleic anhydride derivatives and functional material intermediates. In 23, the company's sales volume of maleic anhydride derivatives increased dramatically, achieving a total sales volume of 82,200 tons, an increase of 21.69% over the previous year. Among them, sales of products used in the wind power sector accounted for more than 10% of the overall sales of maleic anhydride derivatives. However, due to the price of raw materials, the price was lower than the same period last year. In '23, the average sales price of the company's maleic anhydride derivatives was 12,100 yuan/ton, a year-on-year decrease of 33.2%. Revenue declined due to volume increases and price reductions. In '23, the company achieved a total operating income of 995 million yuan in maleic anhydride, accounting for 72.1% of total revenue, and revenue decreased 18.72% year on year. In terms of gross margin, the company's gross sales margin in '23 was 27.9%, a year-on-year decrease of 9.9pct. Among them, the gross margin of maleic anhydride derivatives was 23.3%, a year-on-year decrease of 14.9pct. In terms of cost ratios, the company's sales, management, and financial expenses rates in '23 were 0.6%, 2.8%, and -0.8%, respectively, with year-on-year increases of 0.04, 0.2, and 0.9 pct, respectively.

Continue to expand the production capacity of maleic anhydride anhydride derivatives and build the number one brand in the domestic maleic anhydride derivative industry. The company is the supplier with the largest variety of maleic anhydride derivatives in the domestic maleic anhydride derivative market. The company currently has a production capacity of 71,000 tons/year for maleic anhydride derivatives, functional material intermediates and R&D center projects. The production capacity is under construction of 50,000 tons/year, and production capacity will continue to be released. The company will continuously optimize the product structure, enhance the company's overall technical level and technological innovation capabilities, continue to meet the multi-specification and high-grade development needs of the maleic anhydride derivatives market, and gradually become the number one brand in the domestic maleic anhydride derivatives industry by implementing large-scale and refined management strategies and following the enterprise development path of “leading technology, cost advantage, and continuous optimization and extension of the product line”.

Increase investment in R&D and continue to enhance the company's market position in OLED functional materials and other product fields. In '23, the company's R&D expenses were 79 million yuan, an increase of 6.8% over the previous year. The company will continue to improve the synthesis process of OLED-related functional material intermediates to reduce production costs, and continue to focus on OLED functional materials within the development plan, mainly including: OLED optoelectronic materials, OLED hole transmission materials, hole injection materials, hole blocking materials, electron transmission materials, electron injection materials, electron blocking material intermediates, and organophosphine compounds as catalytic ligands for material synthesis. In terms of intermediates for other functional materials, the company will extend the product chain and increase the added value of products through research and development of synthesis processes for borneol and organophosphine compounds.

Profit forecast, valuation and rating: Maleic anhydride derivatives increased and decreased, and the company's performance declined in '23. Since the price of maleic anhydride derivatives is still under pressure, and downstream demand has not improved significantly, 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 2.97 (down 12.6%) /3.53 (14.8%)/401 million yuan, respectively, maintaining the “buy” rating.

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