Non-net profit declined 7.90% year over year in 2023. In 2023, the company achieved operating income of 1,894 million yuan, a year-on-year decrease of 13.21%; realized net profit of 325 million yuan, a year-on-year decrease of 31.94%; and realized deducted non-net profit of 295 million yuan, a year-on-year decrease of 7.90%. With 2023Q4, the company achieved operating income of 488 million yuan, up 5.81% year on year, down 4.05% month on month; realized net profit of 9.04 million yuan, down 8.64% year on year, up 6.54% month on month; realized deducted non-net profit of 88.14 million yuan, up 71.98% year on year and 6.66% month on month. The company disclosed the 2023 equity distribution plan, and plans to distribute a total discovery dividend of 84.333 million yuan, accounting for 56.61% of net profit returned to mother in 2023.

Continue to deeply cultivate the field of small varieties. The company's cultivation of high-margin small varieties continues to grow, leading to a continuous increase in the company's profit level. In 2023, the company adjusted its business strategy in due course, and made every effort to focus on high-profit small-variety products. New application fields represented by high-end electronic chemicals and functional new material resins continued to expand, and the three stages of cultivation, growth and maturity were arranged in an orderly manner, laying a solid foundation for the company's medium- to long-term development. The company voluntarily withdrew from the production of a large variety of products in the water reducing agent segment in 2023H1. At the same time, the company is actively developing growth products represented by surfactants for wet electronic chemicals, new energy glue resins, and UV light-curing new material resins, etc., and continues to cultivate the field of small varieties in line with the principle of “small varieties create profit”.

Committed to building a world-class specialty surfactant platform. The company is committed to building a world-class specialty surfactant R&D, production and sales platform with a rich variety of products, a wide range of applications and excellent quality. In 2023, based on 16 major sectors, including functional new material resins, high-end electronic chemicals, silicone, lubricants and metalworking fluids, polyether amines and environmentally friendly coatings, the company actively explores strategic emerging products, focuses on solving key technical problems in the industry, actively develops key products in various sectors, and develops special surfactants with independent intellectual property rights.

Continuing technological innovation and product development. The company has established close industry-university-research cooperation with well-known universities and research institutes such as Zhejiang University, and has established good business and technical cooperation relationships with world-renowned companies such as Maitu and Dow Corning. In 2023, the company added 5 new national, industry and group standards to participate in the formulation and revision, with a total of 80; had a total of 10 national key new products; and added 39 provincial new product trial production plans, with a total of 273. 10 new scientific and technological achievements have been certified, with a total of 128; 2 patent awards and science and technology progress awards at the provincial, municipal and association levels have been added, for a total of 35.

Projects under construction have laid the foundation for the company's growth. Real Madrid should focus on releasing production capacity and improving efficiency, putting part of the production capacity of 30,000 tons into operation in Phase II, and passing the Zhejiang Future Factory Certification and Inspection to a high standard. Lukean continues to optimize its production capacity structure, withdraw from the production of a large variety of products in the water reducing agent sector, and further promote project investment and implementation of technical reforms. Real Madrid Kaimeike successfully started construction of the project with an annual output of 330,000 tons (phase I).

Profit forecast. We expect the company's 2024-2026 net profit to be 381, 4.74, and 593 million yuan, respectively. Referring to companies in the same industry, considering that the company is a leader in surfactants and actively develops growth products, we gave the company 18-21 times PE in 2024, with a corresponding reasonable value range of 11.70-13.65 yuan, maintaining a “superior to the market” rating.

Risk warning. Macroeconomic cycle; production safety expectations; raw material price fluctuations.