Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 972 million yuan, a year-on-year increase of 13.87%, a year-on-year decrease of 22.65%, after deducting non-net profit of 137 million yuan, a year-on-year decrease of 11.32%; in the first quarter of 2024, the company achieved revenue of 192 million yuan, a year-on-year decrease of 41.18%, and net profit of 32 million yuan, a year-on-year decrease of 52.09%.

Revenue from molecular sieve materials increased steadily throughout the year, and efforts to develop new products continued to increase. In 2023, the company faced various challenges in terms of economic pressure in the global market and fluctuations in raw material prices, while also seizing important development opportunities. For the whole year, zeolite materials achieved revenue of 9.3 billion yuan, an increase of 11.6% over the previous year, and a gross profit margin of 30.63%, a year-on-year decrease of 2.64 pcts. Prices of some raw materials have fluctuated drastically in the past two years. The company has stepped up research and development of iterative products and launched upgraded products with better costs. In the traditional downstream market, the company has increased technical support capabilities for product applications to provide customers with more professional integrated services including scheme design, molecular sieve material selection and loading. In terms of new product development, the company combines the performance advantages of molecular sieve products to develop more novel molecular sieve products that lead market consumption and solve customer product pain points, and have achieved breakthroughs in new product applications in the automotive sector, home appliances and other industries.

Changes in the sales structure in the first quarter led to a decline in profits, and several projects achieved new breakthroughs. During the reporting period, changes in the company's product sales structure led to a decline in revenue, an increase in the cost ratio, and a year-on-year decline in performance.

The company has stepped up its expansion into the international market. Currently, Thailand's Jianlong's orders for molecular sieves from Europe, America and Southeast Asia continue to increase. In the first quarter of 2024, the company achieved export revenue of about RMB 5.04 million, an increase of 19.63% over the previous year, further showing its advantages in overseas layout. The company successfully completed the molecular sieve loading of COFCO Group's project with an annual production capacity of 240,000 tons of anhydrous ethanol. The project was successfully put into operation once, broadening the application scenarios of the company's products. In terms of promoting new products, the company's fifth-generation special cryogenic air separation molecular sieve and other products have completed the overall replacement of a 70,000 Nm3/h cryogenic air separation system under Sinopec. During the reporting period, the company's various products were selected for the first time in Sinopec's collection system and ranked high. This marks a new breakthrough in the company's business development in the petrochemical field and lays a solid foundation for the company's future development.

Positive progress has been made in cultivating new products, and new projects have opened up room for growth. In 2023, the sales revenue of the company's related new products was about 24 million yuan, an increase of 354.94% over the previous year. Among them, the company's new products such as automobile braking systems and air suspension systems contributed greatly, achieving a total sales scale of more than 1,000 tons. It is expected to expand further in 2024. In terms of catalysts, the company has achieved sales breakthroughs of more than tens of tons in petrochemical catalysts. In 2024, the company will continue to strengthen the marketing promotion of this product and promote the company's expansion from molecular sieve adsorbents to zeolite catalysts. The company is actively laying out new projects. The first phase of the adsorption materials industrial park renovation and expansion project has been completed and put into operation. It plans to invest 710 million yuan to build the adsorption materials industrial park renovation and expansion project (phase II) and the Thai subsidiary construction project (phase II), which is expected to further open up future growth space.

Give an “increase in wealth” investment rating. As the volume of the company's products fell short of expectations, we adjusted the profit forecast. The company's net profit for 2024-2026 is estimated to be 194 million, 274 million yuan, and 353 million yuan, respectively, and EPS is 2.33, 3.29, and 4.23 yuan respectively. The current stock price corresponds to PE of 15, 11, and 8 times, respectively, giving a “gain” rating.

Risk warning: the price of raw materials has risen, the construction of new projects falls short of expectations, and the volume of products has fallen short of expectations.