Core views
For the full year of 2023, the company's revenue increased 36%, and net profit to mother increased 89%. 24Q1 revenue still achieved 21% growth under a high base, and after deducting non-net profit, increased 29.8%, maintaining a steady trend. The gross margin of 23Q4 and 24Q1 companies was 46.6%/47.8%, respectively. Costs increased due to project consolidation in 23Q4. The gross margin rebounded sequentially in 24Q1 as production increased, and the increase in sales share of new sunscreen agents such as EHT and PS led to a continuous increase in average price and profitability. As the company's new projects are gradually put into operation, there is still room for a 75% increase in the production capacity utilization rate of cosmetic active ingredients and raw materials, and costs are expected to drop accordingly. This year, the company will promote the construction of a high-end personal care products and synthetic fragrance project in Anqing and a sunscreen series product project with an annual output of 10,000 tons in Malaysia. It is expected that care products will gradually be released in Q2, opening up room for category and customer expansion.
occurrences
The company announced its 2023 annual report and 2024 quarterly report: for the full year of 2023, it achieved revenue of 2.40 billion yuan, +36.0%, net profit to mother of 734 million yuan, +89%, net profit after deducting non-net profit of 715 million yuan, +89.1%, which fell within the forecast range. Net cash flow from operating activities was $799 million, +178%. In Q1 2024, we achieved revenue of 712 million, +21.1%, net profit attributable to mother of 220 million, +37.2%, after deducting non-net profit of 204 million, +29.8%. The company plans to increase 10 shares for every 10 shares and pay a dividend of 15 yuan, with a cash dividend of 255 million yuan.
Brief review
The increase in consolidation led to a slight decline in gross margin. In the Q4 quarter of 2023, the company achieved revenue of 626 million yuan, +21.3% (36.3% in Q3), net profit to mother of 197 million yuan, +47% (73.1% in Q3). The fourth quarter was the company's traditional peak season, and the 2022 base was relatively high. Judging from the 21.1% revenue growth rate in the first quarter of 2024, the company still achieved steady revenue growth. Currently, the growth rate of the C-side global cosmetics market is slowing down significantly. The company's sunscreen segment is performing well, and the company's market rate is expected to continue to increase. 23Q1-23Q4's gross margin was 49.0%/49.7%/50.1%/46.6%, respectively. The company's gross margin was the highest in Q3 last year. Since 23Q4, the company's fixed assets were 1,236 billion yuan, a sharp increase of 88% over the previous year. Along with the increase in utilization rate, the company's 24Q1 gross margin of 47.8% has rebounded sequentially, and it is expected that subsequent fixed production costs will continue to be diluted. From the perspective of raw materials, the average price of the company's top two major raw materials (accounting for more than 25% of total procurement) both declined compared to the second half of 2022, and the company partially locked down the expected purchase price through a contract.
The incremental contribution of new sunscreen agents was obvious. Structural price increases led to a profit increase of 2,070 billion yuan in the company's cosmetic active ingredients and ingredients business in 2023, with a gross profit margin of 53.06%, a significant increase of +12.95pct. The company's new sunscreen led to price increases. In terms of volume and price breakdown, the average price of this business category in 2023 was 106,000 yuan/ton, up 22.3% year on year, and sales increased 17.52% year on year. In 2023, the synthetic fragrance business had revenue of 308 million yuan, up 6.8% year on year, gross profit margin of 23.6%, and a slight increase of 0.39 pct year on year.
Production capacity expansion was carried out in an orderly manner, and market share was further expanded
In 2023, the company's production capacity utilization rate of active ingredients and raw materials in cosmetics was 75.05%, and synthetic fragrances were 64.64%. There is still room for improvement in the utilization rate of the company's new production capacity as it continues to expand production. During the reporting period, the company has successfully completed the construction and trial production of some production lines of the Maanshan COSCO sunscreen series product expansion project with an annual output of 5,000 tons, and the production capacity scale of AVB, PA, and EHT will be further increased. At the same time, construction of the Anqing Covex high-end personal care products and synthetic fragrance project (phase 1) and the high-end personal care products project with an annual output of 3,200 tons is progressing rapidly. The first batch of 12,800 tons/year amino acid surfactant and 3,000 tons/year of PO, a novel anti-dandruff agent, were built and put into production, and the 2,600 tons/year high-end personal care products project has also basically been completed. The company will promote the construction of the Anqing Covex high-end personal care products and synthetic fragrance project and a sunscreen series product project with an annual output of 10,000 tons in Malaysia to continue to meet growing demand. In 2023, the company's overseas business accounted for about 90%, an increase of 37.68%, and the foreign share continued to increase.
Profit forecast and investment advice: The company introduced a restricted stock incentive plan last year, and employees' interests are fully tied. Demand for sunscreen racetracks is resilient, and the penetration rate is still increasing. Looking at major events such as the Paris Olympics and the European Cup this year, the world will also indirectly benefit sunscreen products for travel. We expect the company's EPS to be 5.52/6.99/8.56 yuan in 2024-2026, corresponding PE is 15/12/10 times, maintaining the purchase rating.
Risk analysis
1. Risk of price fluctuations of main raw materials: The company's main raw materials are chemical raw materials, and their prices are affected by various factors such as the international situation, domestic macroeconomic changes, and supply and demand, and the uncertainty of future changes in chemical raw material prices; 2. Risk of exchange rate fluctuations: The company's export revenue accounts for a relatively high share, and export products are mainly denominated in US dollars and euros. The impact of fluctuations in the RMB exchange rate on the company's operating performance is mainly reflected in the fact that when the RMB is appreciating or depreciating, the competitiveness of the company's products in overseas markets declines or rises; on the other hand, from confirming sales revenue from forming accounts receivable until remittance collection, the company generates exchange gains and losses due to fluctuations in the RMB exchange rate, which directly affects the company's performance.