The Zhitong Finance App learned that Anxin International released a research report stating that it maintained Global New Materials International's (06616) “purchase” rating and lowered the 24/25/26 net profit forecast to RMB 3.1/4.0/510 million yuan, corresponding EPS to HK$0.25/0.32/0.4, and the target price was lowered to HK$4.9. The bank believes that the implementation of the second phase of the project will enhance domestic performance, and international business is also expected to develop more rapidly.

Anxin International's main views are as follows:

Revenue has maintained steady growth.

Revenue in '23 was $1.06 billion, up 16% year over year. In August '23, the company acquired 42% of CQV's shares and merged. Excluding the effects of mergers, the company's comparable growth rate was 13%. Among them, revenue from synthetic mica pearlescent pigments was 438 million, up 15.7% year on year, while revenue from natural mica pearlescent pigments was 400 million yuan, down 3% year on year. The product structure is still being further optimized, and the proportion of high-end products is further increasing. The sales volume of pearlescent pigments in 23 years was 18,700 tons, an increase of 4% over the previous year. The unit sales price was 52,000 yuan/ton, an increase of 8.9% over the previous year. On the one hand, it was driven by the company's price increase for some products, and on the other hand, it was driven by CQV products with higher sales unit prices.

Epitaxial expansion increases costs.

The company's net profit returned to mother in '23 was 180 million, a year-on-year decrease of 18.9%. Mainly, administrative expenses and financial expenses increased rapidly. Administrative expenses in '23 were 188 million, an increase of 47% over '22, financial expenses of 51 million, and an increase of 40 million over '22. The reasons for the increase in expenses include: 1) the impact of the consolidation of CQV; 2) the costs of acquiring CQV; 3) the costs of potential investment opportunities; 4) the cost of adding new mergers and acquisitions teams; and 5) the increase in amortization of intangible assets.

The new production capacity was put into operation, and the first batch reached 10,000 tons of pearlescent production capacity.

The company's original pearlescent pigment production capacity was 18,000 tons, which is close to full production. The second phase of the plant was officially put into operation in February '24, with a design capacity of 30,000 tons, and the first batch landed about 10,000 tons. After production is put into operation, it can better meet market demand. The Phase II factory has a higher degree of automation and is more energy efficient. It is the largest and most advanced pearlescent material factory in the world. In the future, it will mainly produce high-end automotive weather-resistant, cosmetic grade, and special functional pearlescent pigment products. The bank expects the new plant to contribute 6,000 tons of pearlescent pigment production in 24 years.

The Korean business is expected to grow rapidly.

The company officially completed the settlement of the acquisition of CQV in August '23. Project collaboration and integration work is already being actively carried out, including channels, product research and development, and supply chains, which have direct complementary effects. Chinese factories have begun to supply synthetic mica raw materials to Korean companies, which has solved Korean companies' long-standing raw material bottlenecks and drastically reduced costs. The Korean business is expected to grow rapidly in the future.

Risk warning: Industry competition intensifies, macroeconomic downturn affects downstream demand, raw material costs rise, and mergers and integration efforts fall short of expectations.