Event: The company publishes its 2023 annual report. In '23, the company achieved operating income of 3,902 billion yuan, an increase of 5.05% over the previous year, and realized net profit of 299 million yuan to mother, an increase of 2.41% over the previous year. Among them, the company achieved revenue of 814 million yuan in a single quarter, down 1.95% year on year, down 19.10% month on month, and realized net profit to mother of 0.03 billion yuan, down 90.56% year on year and 95.91% month on month.

The volume and price of silicone and polyurethane adhesives increased and decreased, and the company's performance increased 2.41% year-on-year in '23. In '23, the company's main products, organic silicone, polyurethane glue, and non-rubber products, achieved revenue of 20.63 billion yuan, 7.55 million yuan, and 785 million yuan respectively, with year-on-year changes of +6.61%, +28.91%, and -14.39%, respectively. Sales of silicone and polyurethane adhesives increased significantly year-on-year. In '23, the two achieved sales volumes of 15.81 and 38,000 tons, respectively, increasing 54.08% and 31.96% year-on-year. The sales prices of the two were 1.30 and 1.99 million yuan/ton, respectively, down 30.81% and 2.31% year on year.

In terms of gross margin, the company's gross sales margin in '23 was 22.82%, a year-on-year decrease of 0.67pct. Among them, the gross margins of silicone, polyurethane rubber, and non-rubber products were 23.64%, 23.65%, and 14.98% respectively, with year-on-year changes of -1.21, +1.72, and -2.40pct, respectively. In terms of cost ratios, the company's sales, management, R&D, and financial expenses in '23 were 4.76%, 5.14%, 4.61%, and 0.76%, respectively, with year-on-year changes of -0.09, -0.05, -0.10, and +0.88pct, respectively.

The layout optimizes domestic and foreign production capacity to achieve scale improvement and intelligent manufacturing transformation. In recent years, according to market demand, the company has continued to maintain resource investment in photovoltaic new energy, consumer electronics, smart appliances, new energy vehicles, lithium battery energy storage, green packaging, etc., and has continuously optimized the business structure and industrial layout. New bases in Xiangyang and Guangzhou have been built and opened, and new production capacity such as photovoltaic silicone, electronic and electrical adhesives, and lithium battery adhesives have been put into operation. At the same time, it is accelerating factory construction in Vietnam and starting overseas production capacity layout. By the end of '23, the company had an annual production capacity of about 210,000 tons of silicone, 65,000 tons of polyurethane glue, an annual production capacity of about 25,000 tons of other adhesives, and an annual production capacity of 120 million square meters of solar cell back film. In '23, the company's production line for photovoltaic silicone sealants with an annual output of 30,000 tons, a polyurethane glue production line for lithium batteries with an annual output of 10,000 tons, a lithium battery electrode adhesive production line with an annual output of 15,000 tons, a solar cell back film production line with an annual output of 36 million square meters, and an intelligent electronic adhesive production line with an annual output of 39,300 tons were completed and put into operation. In the second half of '23, the company launched a photovoltaic backpanel construction project with an annual output of 26 million square meters in Vietnam, which is expected to be officially mass-produced by the end of 24; according to the future supply demand for photovoltaic adhesives, it will continue to invest in a photovoltaic single-component silicone sealant project with an annual output of about 44,000 tons in Xiangyang, which is expected to be completed and put into operation by the end of June 24; initiated the acquisition of 51% equity in Anqing Hualan Technology Co., Ltd. to accelerate the strategic business capacity layout of lithium battery anode adhesive (SBR).

Profit forecast, valuation and rating: Prices of the company's products such as silicone and polyurethane adhesives fell. We lowered the company's 24-25 profit forecast and added a 26-year profit forecast. The company's net profit to mother for 24-26 is 3.53 (down 30.6%)/4.07 (35.4% reduction)/501 million yuan, respectively. Benefiting from policy support, downstream demand for new energy sources such as photovoltaics and lithium batteries is still strong. As the company's production capacity continues to increase, the company's business conditions will continue to improve, and we will still maintain the company's “buy” rating.

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