Description of the event
On April 23, 2024, Xinhecheng released the 2023 Annual Report and the first quarter results forecast for 2024. In 2023, the company achieved operating income of 15.117 billion yuan, a year-on-year decrease of 5.13%; net profit to mother was 2.704 billion yuan, a year-on-year decrease of 25.30%; net profit after deducting non-return to mother was 2,614 billion yuan, a year-on-year decrease of 27.12%.
The company expects to achieve net profit of 836 million yuan to 100 million yuan in Q1 of 2024, up 30% to 40% year on year, 38.65% to 49.32% month on month, net profit after deducting non-return to mother of 821 million yuan to 880 million yuan, up 40.00% to 50.00% year on year, and 23.71% to 32.55% month on month.
The company's 23 annual results were in line with expectations, with a sharp increase in 24Q1
In 2023, the company's revenue was in line with expectations. Production and sales increased year-on-year, falling prices of main products put pressure on annual results. Downstream demand improved in 23Q4, and performance showed a rebound trend. In the fourth quarter of 2023, the company achieved operating income of 4.104 billion yuan, a year-on-year increase of 2.00%, a year-on-month increase of 14.21%, net profit of 603 million yuan, a year-on-year decrease of 1.02%, a year-on-month decrease of 2.42%, after deducting net profit of 664 million yuan, a year-on-year increase of 0.65% and a month-on-month increase of 15.34%.
During the reporting period, the company's nutrition sector accounted for 65.27% of revenue. Among them, VE/VA/VC prices of major products continued to decline, affecting performance. According to Juyuan data, the average price of 23Q4 reached 62.74/73.84/16.33 yuan/kg, a decrease of 10.30%/12.69%/10.91% month-on-month; methionine prices rebounded after 23Q3, and the average price of 23Q4 was 21.22 yuan/kg, which helped improve 23Q4's performance. Looking at the whole year, the production and sales volume of the company's pharmaceutical and chemical products rose at the same time compared to the previous year, and inventories were basically stable. The company's profit structure continues to be optimized. Among them, nutrition revenue from the main sector decreased by 9.91% compared to the previous year, gross margin was 29.91%, down 6.68PCT, and the revenue share decreased by 3.46%; revenue from flavors and fragrances increased 10.34% from the previous year, and gross margin was 50.51%, up 1.54 PCT, and the revenue share increased by 3.04%.
Prices of 2024Q1's main products have rebounded, and expectations are optimistic. Performance growth is due to a rebound in the quarterly average price of VE/VA/VC for the main products. The average price for 24Q1 was 65.44/81.78/20.57 yuan/kg, up 4.29%/10.76%/25.95% month-on-month. As the price of vitamin products rebounded, the company's gross margin and performance improved.
Optimize the profit structure and continue to expand the business in the four major sectors
The company is steadily advancing project progress, optimizing the product matrix, and improving the company's core competitiveness. In the nutrition sector, market demand is expected to improve. The price of pigs sold nationwide reached 15.11 yuan/kg as of April 18, up from the average price in the 23Q4 quarter. The recovery in the pig market environment will drive a recovery in feed demand. It is expected that vitamin prices, which are in rigid demand, will be supported. The second phase methionine project with an annual production capacity of 250,000 tons has been completed, and the plant process route has been opened and put into operation; construction of 180,000 tons of liquid methionine (pure) with an annual output of 180,000 tons with Sinopec is under construction; construction of a cystine A4 project with an annual output of 4,000 tons has commenced; the 30,000 tons/year taurine project and the 2,500 tons/year vitamin B5 project have been produced and sold normally. The essence and fragrance sector achieved high gross profit margins, increased the share of revenue, and increased the company's ability to bear pressure. The 5,000 ton menthol project is produced and sold normally, contributing to the company's gross margin. The new materials sector has huge market space. The construction of the third phase of the company's PPS project with an annual output of 7,000 tons has been completed, with normal production and sales. Currently, the total production capacity of the adiponitrile project has been successfully completed; the HA project production line in Shandong Industrial Park has been completed and products are being produced. Currently, IPDA produces 20,000 tons per year, IPDI produces 1,000 tons per year, and polymers are still being approved. In the API sector, pharmaceutical grade Q10 is listed. The company will upgrade its product structure according to market demand and gradually develop into a manufacturer of antipyretic, analgesic, nutritional drugs and specialty API intermediates.
Investment advice
The company's net profit for 2024-2026 is estimated to be 40.51 billion, 49.88, and 6.321 billion yuan respectively (before 2024-2025:36.99 billion yuan and 4.383 billion yuan, respectively), with year-on-year growth rates of 49.8%, 23.1%, and 26.7%. Corresponding PE was 14, 11, and 9 times, respectively, maintaining a “buy” rating.
Risk warning
(1) macroeconomic risks;
(2) Prices of raw materials fluctuate greatly;
(3) Production capacity construction falls short of expectations;
(4) Exchange rate and trade risks.