An overview of the incident. On April 18, 2024, Shengquan Group released its 2023 annual report. During the reporting period, the company achieved operating income of 9.120 billion yuan, -4.98% year on year, and net profit to mother of 789 million yuan, up 12.23% year on year. After deducting non-net profit of 736 million yuan, an increase of 14.64% year on year. Among them, the fourth quarter of 2023 achieved revenue of 2,427 billion yuan, -3.76% year-on-year, 4.36% month-on-month, and net profit to mother of 307 million yuan, up 36.25% year-on-year and 82.36% month-on-month.
Sales of resin products have increased dramatically, and profitability has steadily increased. In 2023, the company achieved sales volume of 489,200 tons of phenolic resin (excluding electronic grade products), a year-on-year increase of 26.28%, and achieved revenue of 3,522 billion yuan, a year-on-year increase of 1.02%, gross profit margin of 19.79%, and a year-on-year increase of 0.17 percentage points. Achieved sales of 157,700 tons of resin for casting, a year-on-year increase of 9.48%, revenue of 1,59%, a year-on-year revenue of 1,59%, a year-on-year increase of -22.20%, gross profit margin of 22.59%, and a gross margin increase of 2.67 percentage points. Under the unfavorable circumstances of weak market demand and falling product prices, the company's traditional resin products achieved a significant increase in production and sales, stable profitability, and further increased market share. Sales of the company's resin-based products are expected to grow steadily in 2024.
Electronic chemicals have blossomed, and many products have been put on the market one after another. In 2023, the company achieved sales volume of 681,000 tons, a year-on-year increase of 12.20%, revenue of 1,184 billion yuan, -6.72% year-on-year, and a gross profit margin of 25.86%, an increase of 4.59 percentage points over the previous year. The company successfully achieved mass production of special electronic resin polyphenylene ether PPO, took the lead in passing end customer certification, and solved the bottleneck problem of domestic high-end electronic raw materials through industrial chain cooperation. This product targets a new generation of high-frequency high-speed copper-clad panels. Currently, supply is in short supply. Production expansion plans are progressing in an orderly manner. It is expected to be completed and put into operation in the 2nd quarter of 2024. At the same time, the company not only focused on developing M6 and M7 level high-frequency high-speed resins, but also promoted the development and promotion of ultra-low loss materials such as M8 and M9. In terms of localization and replacement of specialty epoxy resins, phenol biphenyl epoxy, crystalline epoxy, DCPD epoxy, etc. have been commercialized one after another, and the development of photoresist resins, maleimide resins, and hydrocarbon resins has also made positive progress. The company will usher in a period of harvesting results in the field of electronic chemicals.
The biomass project was put into operation, and it is expected to gradually improve after many technical improvements. The company has been involved in the biomass industry since the construction of the factory, and the “Shengquan Law” integrated biomass refining technology developed was selected into the National Development and Reform Commission's “Green Technology Promotion Catalogue (2020)”. In May 2023, the Daqing Plant Straw Refining Integrated Project was put into operation. It can produce a series of green bio-based products such as biomass resin carbon, hard carbon anode materials, highly active lignin, furfural, pulp, biomethanol, and degradable materials. After more than a year of operation, the operating conditions have gradually improved.
Investment suggestions: In 2024, the company's traditional resin business, electronic chemicals, and biomass projects all have bright directions. We forecast 2024-2026 results of 1,004 billion yuan, 1,415 billion yuan, and 1.703 billion yuan respectively. The corresponding PE is 16x, 12x, and 10x respectively. We are optimistic about the company's growth and maintain the “recommended” rating.
Risk warning: 1) Downstream demand growth falls short of expectations; 2) New project construction progress falls short of expectations;