2024Q1 revenue grew steadily, and net profit declined due to costs, etc. The company released a report for the first quarter of 2024. The company achieved revenue of 300 million yuan, yoy +23.6% in the first quarter of 2024, mainly due to the company's new project operation and active market development, the sales volume of resource-based products increased compared to the same period last year; realized net profit of 205.36 million yuan, yoy -43.2%, mainly due to: 1) The current competition in the catalyst industry is fierce, and the unit price of catalyst sales unit price and waste catalyst treatment and disposal unit price decreased year-on-year; 2) The operation of the new project led to a significant year-on-year increase in depreciation costs, labor costs, etc.; 3) The company's overall expenses such as depreciation costs and labor costs increased significantly over the same period last year; 3) The suspension of work and inspection caused the company as a whole to increase significantly. Costs and expenses are rising.
Gross margin has declined, expenses have risen slightly, and cash flow from operating activities has improved markedly. The company achieved a gross margin of 23.9% (yoy-12.5pct) in the first quarter of 2024, mainly due to a decrease in profit and an increase in revenue; the company achieved 2.3% (yoy-0.8pct) in the first quarter of 2024; the management rate achieved 7.8% (yoy+2.3pct); the financial rate achieved 4.8% (yoy+1.2pct), and overall costs increased slightly, mainly due to the operation of new projects, increased labor costs and project construction costs; net cash from operating activities was 10.776 million yuan (yoy +97.9%). Mainly, there was a slight decrease in cash expenses from operating activities.
Technology is king, and the main business is entering major hazardous waste projects. 1) The company is deeply involved in technology and currently has 64 authorized patents. The core technologies include solid waste catalyst resource technology, high-sulfur petroleum coke hydrogen POX ash comprehensive utilization technology, mixed waste plastic deep cracking to make chemical raw materials, industrial waste sulfuric acid chemical chain recycling technology, industrial flue gas non-amino reduction acid removal and denitrification technology, and salt-containing (sodium sulfate) sewage reuse technology. We look forward to the industrialization of many subsequent technologies and unleash performance flexibility. 2) The company won the bid for the Guangdong Petrochemical Refining and Chemical Integration Project in 2021. The wholly-owned subsidiary Guangdong Dongyue will treat and dispose of 167,000 tons/year of petroleum coke hydrogen ash and 2,200 tons/year of catalytic cracking waste catalyst. The project was fully put into production in 2023, and the subsidiary achieved revenue of 740 million yuan and net profit of 190 million yuan in 2023, which is expected to continue to increase the company's revenue and profits.
The waste plastic project is progressing steadily, and high business growth is worth looking forward to. The company's self-developed technology for deep cracking of mixed waste plastics into chemical raw materials has made breakthrough progress, and it has built a demonstration project for the comprehensive utilization of 200,000 tons/year mixed waste plastics in Shijieyang City, Guangdong Province. The project is currently progressing steadily and was approved by the EIA on December 4, 2023. After the project is put into operation, it is a landmark in promoting global chemical recycling of waste plastics, and is expected to bring new profit growth points to the company.
Investment advice: We expect the company to achieve revenue of 13.3/20.7/2.66 billion yuan in 2024-2026, net profit of 2.4/4.3/5.4 billion yuan, corresponding PE of 29.4/16.5/13.1x. The company is deeply involved in hazardous waste recycling technology, and its main business has signed major hazardous waste disposal projects to increase revenue, and the waste plastics business can be expected to catalyze in the future, maintaining a “buy” rating.
Risk warning: risk of declining industry demand, increased risk of market competition, risk of production progress falling short of expectations, and risk of accounts receivable.