Incident: The company released the 2023 annual report and the 2024 quarterly report. In 2023, it achieved revenue of 1,721 million yuan, -13% year on year, net profit of -75% year on year, net profit after deducting non-return to mother's net profit of 0.18 million yuan, -88% year on year, mainly due to: 1) intense competition in the export market, affected by foreign customers' inventory removal, export sales revenue decreased by 35%, and the scale effect weakened; 2) Credit impairment losses and asset impairment losses totaled approximately $54.93 million. 2024Q1 achieved revenue of 499 million yuan, +52% year-on-year, realized net profit of 43 million yuan, +136% year-on-year, and net profit without return to mother of 0.1 billion yuan, +8.28% year-on-year.

In line with industry changes, we are vigorously developing degradable products, and revenue from fully biodegradable products has increased. By product, the company's revenue from plastic products in 2023 was 1.3 billion yuan, -22% year-on-year, 20% gross profit margin, -2.7 pct; revenue from biodegradable products was 260 million yuan, +87% year on year, gross profit margin 18.3%, -5.1 pct year on year; revenue from plant fiber products was 94 million yuan, +5% year over year, and revenue from paper products and others was 64 million yuan, -28% year over year.

Export sales were under pressure in the short term due to foreign customers' inventory losses, and domestic sales continued to grow rapidly. By region, in 2023, the company's revenue in North America was 740 million yuan, -37% year on year, gross profit margin of 25.3%, +1pct year; mainland China revenue was 730 million yuan, +63% year on year, gross profit margin was 14.3%, -2.3 pct year on year; European revenue was 150 million yuan, -37% year over year.

Revenue resumed high growth in 24Q1, and the gradual release of scale effects is expected to drive profit levels to recover. The company's gross profit margin in 2023 was 19.2%, 3pct year on year, mainly due to a decrease in capacity utilization rate and scale effect, 2.6% net interest rate to mother, -6.4 pct year on year, management expenses ratio +1.7 pct year over year, mainly due to an increase in the size of the company, an increase in management personnel, and a financial expense ratio of +1 pct year over year, mainly due to an increase in interest expenses and a decrease in exchange income.

The 2024Q1 company's gross profit margin was 19.3%, +0.2pct year on year, and 8.7% net profit margin to mother, +3.1 pct year on year. The profit level was gradually restored.

Profit forecast and investment suggestions: Plastic bans at home and abroad are becoming stricter, the market for degradable plastic products is broad, the company's product technology is leading, and the company's export sales are expected to stabilize and domestic sales to maintain rapid development. The company's net profit for 2024-2026 is estimated to be 175 million yuan, 207 million yuan, and 244 million yuan respectively. The corresponding PE is 22x/19x/16x, maintaining the “recommended” rating.

Risk warning: Overseas demand falls short of expectations; risk of exchange rate fluctuations; price fluctuations of raw materials; increased competition in the industry.