2023 results slightly below market expectations
The company announced its 2023 results, achieving revenue of 1.89 billion yuan, -13.2% year on year; net profit attributable to mother of 325 million yuan, -31.9% year on year; net profit after deducting non-return to mother of 295 million yuan, -7.9% year on year; corresponding profit per share of 0.55 yuan, slightly lower than market expectations. Of these, 4Q23 achieved revenue of 490 million yuan and net profit of 90 million yuan to mother. We believe that the year-on-year decline in performance is mainly due to poor profits for large products, the company's gradual withdrawal from this business, compounded by the year-on-year decline in prices for small products.
By product, in 2023, the revenue of the large variety sector fell 82.5% year on year, and the revenue of the small variety sector rose 5.7% year on year. The company further optimized the product structure and reduced the share of the large variety sector. Furthermore, in 2023, the company's gross margin of small products fell by 0.8 ppt to 25.2% year on year, while gross margin of large products fell 4.5 ppt year on year to 4.6% year on year. Judging from the production and sales situation, sales in the large variety sector fell 80% year on year to 0.82 million tons, while sales of small varieties rose 10% year on year to 133,300 tons.
Development trends
Continue to develop small varieties and withdraw from the water reducing agent business. In 2023, the company achieved 133,300 tons of small variety production and sales. We are optimistic that small varieties will grow by more than 20% in 2024, achieving sales volume of more than 160,000 tons. Looking at specific directions, we are optimistic about new energy resins, UV light-curing resins, wet electronic chemicals, polyether amines, etc. Among them, the company completed a 10,000 ton production capacity expansion of polyether amine by the end of 2023, and we expect further expansion in 2024. Furthermore, the subsidiary Lukean optimized its production capacity structure and withdrew from the production of water reducing agent products.
Actively repurchase plus cash dividends to give back to shareholders. The company announced in April 2023 that it intends to use centralized bidding to repurchase shares. The repurchase amount is not less than 40 million yuan, not more than 80 million yuan.
Stock repurchases are intended to be used for subsequent employee stock ownership plans, and cancelled if not implemented. As of early April 2024, the company had repurchased 8,480,000 shares, accounting for 1.44% of the company's total share capital. Furthermore, the company recently announced that it plans to distribute a cash dividend of 0.15 yuan (tax included) per share, and a total cash dividend of 84.333 million yuan is expected. The company actively gives back to shareholders through stock repurchases and cash dividends.
Continue to invest in R&D to increase breakthroughs in new sectors. There are many types of surfactant products. The company continues to increase investment in R&D. By the end of 2023, it had developed more than 1,800 products. In 2023, 49 new nationally authorized invention patents were added, 1 new internationally authorized invention patent was added, and 7 utility model patents were added.
Profit forecasting and valuation
Traditional downstream demand is weak. We lowered our 2024 profit forecast by 15% to 408 million yuan, and introduced a 2025 forecast of 537 million yuan for the first time. The current stock price corresponds to 14/11 times P/E for 2024/25. Maintaining an outperforming industry rating, taking into account the decline in profit and upward sector valuation, we maintained a target price of 12.5 yuan, corresponding to 18/14 times the 2024/25 price-earnings ratio, with 27% upward space compared to the current stock price.
risks
Macroeconomic downturn; progress in Real Madrid's Shangyi new materials project fell short of expectations; operational risks such as safety.