Incidents. On April 20, 2024, the company released its 2023 annual report. Throughout 2023, the company achieved revenue of 17.532 billion yuan, a year-on-year decrease of 9.57%; realized net profit of 437 million yuan, a year-on-year decrease of 54.31%; and realized net profit of 275 million yuan after deduction, a year-on-year decrease of 70.28%. Among them, in 4Q2023, the company achieved revenue of 4.629 billion yuan, a year-on-year increase of 0.33%; realized net profit of -44 million yuan, a year-on-year decrease of 160.16%; and realized net profit after deduction of -118 million yuan, a year-on-year decrease of 233.81%.
The concentrated expansion of production capacity+macro-demand environment affects the company's profits. In 2023, the bottle-grade PET industry entered a short-term capacity release period. According to Baichuan Yingfu data, a total production capacity of 3.82 million tons of PET bottles was put into operation in 2023, compared with 1.2 million tons in 2022, a year-on-year increase of more than 200%. Coupled with the complex and changing international situation, where high inflation and high interest rates coexist in the world economy, domestic and foreign market demand has not increased significantly to match production capacity.
At the same time, product price spreads have also declined, causing the company's gross margin to decline. According to the 2023 annual report, the company's main product, bottle-grade PET, achieved sales revenue of 16.104 billion yuan, or 2.96% year-on-year, achieving a gross profit margin of 3.78%, a year-on-year decline of 4.59 percentage points.
Production capacity investment has been successfully realized, and the layout of the industrial chain has been continuously optimized. In 2023, the company's holding subsidiary's “New Food-grade PET Polymer Project Expansion (Phase III)” project with an annual output of 1.2 million tons was successfully put into operation. By the end of '23, the company's production capacity had reached 3 million tons, further consolidating its leading position in the industry; in addition, the company plans to raise capital through convertible bonds to build the first 600,000-ton project of Zhengdakai MEG. The project plans to select an advanced natural gas MEG process to form a production capacity of 600,000 tons of upstream raw materials with an annual output of 600,000 tons. DMC and many other derivative projects. After the project is officially put into operation, it will help the company to deepen its vertical integration strategy, enhance the supply capacity of raw materials, and further enhance the company's competitive strength.
Look at the international market and gradually advance the international operation strategy. In order to fully cope with domestic and international market conditions and peer competition, the company has gradually implemented an international business strategy. In May 2023, the company established an overseas subsidiary, Wan Kai International in Singapore, and officially began the first step in the international layout; in December of the same year, after extensive and in-depth field research, the company decided to invest in the construction of a 300,000 tons/year bottle-grade PET production base in Nigeria, the most populous country in Africa, through a joint venture, and took the first step in building an overseas factory. Currently, Nigeria is in preparation stages such as early administrative approval. With the completion and commissioning of this project, the company may become the first company in the PET bottle industry to establish a global presence.
Investment advice: The company is a leading supplier of polyester bottle materials in China. The company has completed the Chongqing Wankai PET Project Phase III, invested in the upstream MEG project to build a complete natural gas-ethylene glycol-polyester industry chain, and the cost control advantage of the company's main business will continue to be strengthened. The company's net profit for 2024-2026 is estimated to be RMB 706, 9.57, and RMB 1,237, respectively; EPS is 1.37, 1.86, and 2.40 yuan, respectively. The current price (April 19, 2024) corresponds to PE of 9x, 7x, and 5x respectively. We are optimistic about the company's future growth and maintain the “recommended” rating.
Risk warning: rising raw material prices, project construction progress falling short of expectations, downstream consumption falling short of expectations, etc.