Incidents:
On March 28, 2024, Convergence released its 2023 annual report: in 2023, it achieved operating income of 6.018 billion yuan, a year-on-year decrease of 0.31%; realized net profit of 197 million yuan, a year-on-year decrease of 18.78%; realized net profit after deduction of 192 million yuan, a year-on-year decrease of 18.63%; gross sales margin of 6.70%, up 0.44 pcts year on year; at the end of 2023, the company's inventory value was 248 million yuan, year-on-year decrease of 0.37 pcts; at the end of 2023, the company's inventory value was 248 million yuan, year-on-year decrease It decreased by 31.41%; the net cash flow from the company's operating activities in 2023 was $520 million, up 46.13% year on year.
In a single quarter of 2023Q4, the company achieved operating income of 1,641 billion yuan, +34.67% year over month; realized net profit of 47 million yuan, +22.55% year on year, -6.73% month on month; net profit after deducting non-return to mother was 0.45 million yuan, +28.84% year on year, -7.72% month on month; gross sales margin was 6.20%, +0.15 pcts year on month, -0.36 pcts month on month; net sales margin of 3.08%, +0.06 pcts year on month, -0.46 pcts month on month pct; At the end of the 2023Q4 quarter, the company's inventory amount was 248 million yuan, -31.41% year-on-month, and -36.25% month-on-month; 2023Q4 net cash flow from the company's operating activities in a single quarter was 324 million yuan, which changed from negative to positive year-on-year, and -37.01% month-on-month.
Investment highlights:
The price of nylon chips fell, and the company's profit in 2023 decreased
In 2023, the company achieved revenue of 6.018 billion yuan, a year-on-year decrease of 0.31%. By product sector, in 2023, the company achieved revenue of 4.007 billion yuan, +40.36%, gross margin of 7.32%, +0.62 pcts; engineering plastic-grade slices achieved revenue of 1,847 billion yuan, or -30.60%, gross margin of 5.31%, -0.14 pct; film-grade slicing achieved revenue of 128 million yuan, or -72.95% year-on-year, gross margin of 1.35%, year-on-year decrease of 4.98 pcts. In 2023, the company sold 477,800 tons of nylon chips, +6.04% year on year, and the average sales price was 12,600 yuan/ton, -5.98% year on year.
In 2023, the company achieved net profit of 197 million yuan, a year-on-year decrease of 18.78%, mainly due to the decline in revenue from the company's engineering plastic-grade slicing and film-grade slicing business. In 2023, the company's sales/management/finance/R&D expenses rate was 0.19%/0.62%/-0.79%/2.63%, respectively, +0.01/+0.10/+0.34/+0.78 pcts. The increase in the company's R&D expenses is mainly due to the increase in R&D expenses of the company's subsidiaries. At the end of 2023, the company's inventory amount was 248 million yuan, a year-on-year decrease of 31.41%, mainly due to the improvement in the company's product turnover situation. In 2023, the company's net cash flow from operations and production was 520 million yuan, an increase of 46.13% over the previous year, mainly due to the increase in cash received by the company from selling goods and providing services.
The fund-raising project progressed smoothly, and production capacity was released in an orderly manner
In 2023, in the face of changes in the domestic and foreign macroeconomic environment and PA6 product market, the company actively exploited the joint advantages of multiple varieties and multiple production bases to maintain steady development of production and operation. The company's “R&D Center” project progressed smoothly, and nylon 66, nylon 66 and nylon 6 copolymer products were put on the market one after another and received market recognition. Production equipment for the convertible bond project “180,000 tons of polyamide 6 new materials project with an annual output of 180,000 tons” was installed and trial operation was carried out, and production capacity was gradually released in 2023. By the end of 2023, the company's nylon 6 production capacity reached 510,000 tons.
Consumption upgrade+high-end manufacturing. Increased demand for high-end nylon materials has benefited from a breakthrough in the bottleneck in the upstream raw material caprolactam supply. The self-sufficiency rate of raw materials has increased dramatically, compounded by the development of downstream fields and advances in PA6 polymerization production technology, and the rapid development of China's PA6 industry. According to Zhuochuang data, in 2023, China's PA6 production and apparent consumption were 4.815,900 tons and 4.5598 million tons respectively, up 8.63% and 7.53% year-on-year respectively. With the upgrading of domestic consumption and the high-quality development of the manufacturing industry, demand for outdoor sportswear such as jackets rises, and the market space for high-end products in civilian fiber is broad; the development of China's automobile, electronics, machinery, high-speed rail and other industries will drive the increase in demand for high-end, high-performance nylon 6 engineering plastics; demand in the food packaging sector will drive the film industry into a healthy development path.
The 2023 dividend ratio reached 45.72%. On March 28, 2024, taking into account the company's development and shareholder returns, the company issued an announcement on the 2023 profit distribution plan. It plans to distribute a cash dividend of 2.85 yuan (tax included) for every 10 shares. As of December 31, 2023, the total share capital of the company was 316 million shares. Based on this, the proposed discovery dividend of 90 million yuan was calculated, accounting for 45.72% of the net profit attributable to shareholders of listed companies.
Profit forecast and investment rating We expect the company's net profit to be 2.40, 3.19, and 414 million yuan respectively in 2024-2026, corresponding to PE 13.86, 10.45, and 8.05 times, respectively.
The company focuses on the high-end nylon market, and the production capacity of the fund-raising project will be released in an orderly manner in 2023, which is expected to gradually contribute to increased performance. As downstream demand gradually picks up and demand for outdoor apparel increases, the company is expected to usher in rapid development. First coverage, giving a “buy” rating.
Risks indicate fluctuations in raw material prices; increased industry competition; changes in environmental protection supervision and energy control policies; exchange rate risks; and progress in the construction of new production capacity falls short of expectations.