The company is mainly engaged in the production and sale of chemical fibers. The main products include biomass cellulose filaments and spandex fibers. 1) Biomass cellulose filament is a type of regenerated fiber. It uses cotton pulp meal, wood pulp meal or other natural fibers as raw materials to make a spinning stock solution through processes such as alkalization and yellowing, and is made by wet spinning. The company's Bailu brand has a wide variety of biomass cellulose filaments, from 30D ultra-fine denier to 600D thick denier, covering more than 20 specifications of 30D, 40D, 75D, 100D, 112D, 118D, 120D, 150D, 300D, 500D, 600D, etc., and also produces colored fibers and functional fibers to meet the diverse needs of customers. Efficiency has also been improved. 2) Spandex is a polyurethane elastic fiber with high elasticity. Together with other fibers, it is made into products such as coated yarn, cored yarn, twisted yarn, etc., and then processed and woven on equipment such as warp knitting and weft knitting. The company's Egret brand spandex fiber is rich in variety and specifications, which can meet the diverse needs of customers; the company's ultra-fine, ultra-soft, and other differentiated spandex is of excellent quality and is highly recognized by the market. 3) In 2023, the company achieved total revenue of 7.379 billion yuan, an increase of 1.43% year on year; total profit of 156.666 million yuan, an increase of 6354.31 million yuan; net loss attributable to the parent company was 42,536 million yuan, a year-on-year decrease of 392.292 million yuan.

The company's two leading products have obvious scale advantages. 1) In 2023, the company's revenue of spandex fiber products was 4.478 billion yuan, accounting for 60.69% of total revenue. The company started entering the spandex industry in 2003, with an initial production capacity of only 3,000 tons. After years of development, production capacity gradually increased. With the commissioning of part of the third phase of the 100,000 ton high quality ultra-fine denier spandex fiber project in 2023, the production capacity of spandex reached 180,000 tons. 2) In 2023, the company's biomass cellulose filament product revenue was 2,611 billion yuan, accounting for 35.39% of total revenue. The company's biomass cellulose filament production has a history of more than 60 years. The project of the company's predecessor, Xinxiang Chemical Fiber Factory, put into operation in 1964 was the biomass cellulose filament project, which currently has a production capacity of 90,000 tons. The company's biomass cellulose filament production capacity scale, equipment level, and product quality all rank in the leading position in the industry.

The company's newly built production capacity was gradually put into operation, and the engineering projects under construction were steadily promoted. 1) In 2023, part of the third phase of the company's high quality ultra-fine denier spandex fiber project with an annual output of 100,000 tons was put into operation, and the spandex production capacity reached 180,000 tons. 2) The second phase of the biomass cellulose project with an annual output of 20,000 tons was put into operation in 2023. The biomass cellulose filament technical improvement project increased production capacity by 8,000 tons, and some production lines were adjusted according to market demand and cost conditions. The total production capacity of biomass cellulose filament reached 90,000 tons by the end of 2023. 3) The first phase of the subsidiary Xinglu Water's industrial water project with an annual output of 36.5 million tons was completed and put into operation at the end of 2023. After the project was completed, the company's water costs were reduced. 4) The company started construction in the first quarter of 2022 with an annual output of 10,000 tons of biomass cellulose fiber. The construction period is 24 months, the annual production capacity is 10,000 tons, the investment budget is 726 million yuan, and the total investment as of 2023 is 576 million yuan. 5) The third phase of the project with an annual output of 100,000 tons of high-quality ultra-fine denier spandex fiber began in the second quarter of 2022. The construction period is 15 months, the annual production capacity is 40,000 tons, and the investment budget is 1,045 million yuan. As of 2023, the total investment is 857 million yuan.

Demand and prices for viscose filament are growing, and we think the company can benefit from this. According to the Chemical Fiber Information Network, driven by Guofeng and Guochao trends, demand for rayon is growing rapidly and supply is tight. Starting March 29, 2024, the prices of various types of rayon from Yibin Silya, Jilin Chemical Fiber, and Xinxiang Egret will increase by 1,000 yuan/ton. We believe that the company, as an industry leader, is expected to continue to benefit from it.

Risk warning: risk of changes in the macroeconomic environment; risk of downstream market demand falling short of expectations; risk of production capacity under construction falling short of expectations.