Special engineering plastics and cosmetic raw materials continued to grow, and new production capacity climbed down and affected short-term performance. Revenue of 435 million yuan was achieved in 2023, up 9.37% year over year. Among them, sales of special engineering plastic raw materials increased by more than 40%, achieving revenue of 255 million yuan, an increase of 25.67%; sales of cosmetic raw materials increased by more than 15%, achieving revenue of 0.53 million yuan, an increase of 13.64%; sales of photoinitiators were affected by capacity adjustments in the first half of the year, and sales volume declined slightly throughout the year, with revenue of 66 million yuan, a year-on-year decrease of 21.63%.

Non-net profit of $85 million was deducted in 2023, down 7.97% year over year. The decline in net profit in 2023 is mainly due to the increase in depreciation costs for plants, ancillary facilities and production lines due to the fact that some workshops in the new factory area are climbing in production capacity.

The gross margin for 2023 was 35.87%, which is basically the same as the previous year (excluding revenue costs associated with the new plant).

The company's gross profit margin in 2023 was 31.81%, down 4.3 percentage points year on year, and the net profit margin was 21.44%, down 5.43 percentage points year on year. In 2023, the company's revenue and operating costs included the trial operation sales revenue of the new factory area of 93.6084 million yuan, and the test operation sales cost of 777.061 million yuan (gross profit margin of the trial operation business 16.99%). After excluding the sales revenue and costs of the trial operation of the new factory area, the company's gross margin for 2023 was 35.87%, which is basically the same as the previous year. In 2023, the company continued to invest in R&D, and R&D expenses increased by 15.67% over the previous year; with the expansion of the company's production scale, annual sales tax and additional and administrative expenses also increased to a certain extent.

Fund-raising releases production capacity to support the growth of the company's core products. In 2023, the first and second workshops of the company's fund-raising project were put into operation. The two new workshops were designed with a production capacity of 5,600 tons/year. With the expansion of the core product market, the company's capacity utilization rate will gradually increase. The DFBP design capacity of the second workshop of the production line related to the fund-raising project is 2,500 tons, some of which have already been mass-produced and supplied; the first workshop HAP has a design capacity of 2,000 tons. Currently, production is progressing normally, and production capacity is expected to increase significantly compared to last year. The third workshop of the second phase of the aromatic ketone project with an annual output of 8,000 tons is expected to be completed in December 2024.

Downstream products are widely used, and market demand has further increased. As a high-performance specialty engineering plastic, PEEK is known as the pyramid of the plastics industry. It has the characteristics of high heat resistance, radiation resistance, chemical resistance, high impact strength, good fatigue resistance, flame retardancy, and excellent electrical properties. It has been widely used in aerospace, electronics, medicine, energy, electricity, machinery, automobiles, coatings, etc., and has become an indispensable key material. Along with the demand trend of “lighter weight” and “more energy efficient” on the downstream application side, it is expected that its application field will expand further. The company's HAP products are mainly used in high-end cream and mask products from well-known brands. Currently, some new cosmetic categories and domestic brands have begun to use them.

Profit forecast. We expect the company's net profit to be 1.35, 1.66, and 200 million yuan in 2024-2026, respectively. Referring to the valuation of comparable companies in the same industry, we gave 2024 25-28 times PE, corresponding to a reasonable value range of 25-28 yuan, maintaining a “superior to the market” rating.

Risk warning. Product prices fluctuated, and the commissioning of new projects fell short of expectations.