2023 and 1Q24 results are in line with market expectations
China Catalyst announced its 2023 results: revenue of 550 million yuan, a year-on-year decrease of 19.2%; net profit to mother of 77 million yuan, corresponding to profit of 0.44 yuan per share, a year-on-year decrease of 49.3%, in line with market expectations. After deducting non-net profit of 54 million yuan, a year-on-year decrease of 58%; net cash flow from operating activities was 107 million yuan, an increase of 100% over the previous year. The year-on-year decline in the company's performance was mainly due to the decline in orders for mobile source denitrification molecular sieve for the company's core product, mobile source, due to changes in downstream demand and customer market share. By product, revenue from the special molecular sieve and catalyst series was 439 million yuan, down 31.3% year on year; revenue from non-molecular sieve catalysts was 81 million yuan, up 280% year on year; and technical revenue was 0.25 million yuan, up 75% year on year. Due to declining sales and lower operating rates, gross margin fell 7.6ppt to 31.5% year over year in 2023.
4Q23 achieved revenue of 186 million yuan, an increase of 45.8% over the previous month; net profit to mother was 34 million yuan, a significant improvement over the previous month. The month-on-month recovery in performance was mainly due to the recovery in overseas denitrification molecular sieve orders, which led to a recovery in revenue and a fair value change of 21 million yuan in 4Q23.
1Q24 achieved revenue of 199 million yuan, up 61.2%/7.2% month-on-month; net profit to mother was 35 million yuan, up 4.3% month-on-month, in line with our expectations. The recovery in performance was mainly due to the continued increase in orders for denitrification molecular sieves from overseas mobile sources. 1Q24 gross margin increased 6pp/15.7ppt to 37.6% month-on-month.
Development trends
Orders for denitrification molecular sieves from overseas mobile sources are picking up. According to the announcement, the company achieved sales volume of about 1,420 tons of mobile source denitrification molecular sieve in 2023 and sales volume of about 730 tons in 1Q24, of which exports picked up significantly by about 560 tons. The company believes that the increase in demand is mainly due to the continued release of its customer BASF exhaust treatment catalysts that meet next-generation standards in Europe and the US. Looking ahead, the company has signed a technical cooperation agreement with BASF to cooperate in the research and development of next-generation mobile source denitrification molecular sieves. We believe that with the gradual advancement of the European 7 emission standards, the company's revenue is expected to continue to pick up.
Based on continuous research and development of silicon and aluminum raw materials, technological progress has been made in the preparation of high-purity alumina and silicon oxide.
The “Technical Process and Enlargement Project for Preparing High Purity Quartz Sand by Liquid Phase Synthesis” launched by the company in 2023 was included in the proposed list of key scientific and technological research and development projects in Dalian. The company plans a 3,000-ton chemically synthesized high-purity quartz project. The company is expected to complete trial production and carry out product verification work within the year. We believe that the new product is expected to contribute more to the company's profits in 2025-26.
Profit forecasting and valuation
We kept our 2024 profit forecast of 135 million yuan unchanged and introduced a profit forecast of 160 million yuan for 2025. The company's current stock price corresponds to 27.5/23.4 times the price-earnings ratio in 2024/25. Keep the target price of 25 yuan unchanged, corresponding to a price-earnings ratio of 33/28 times in 2024/25 and an upward margin of 18.5%, maintaining an outperforming industry rating.
risks
Major customers are highly dependent, downstream demand falls short of expectations, and the construction progress of new projects falls short of expectations.