Report guide

The company released its 2023 annual report, achieving revenue of 1,810 billion yuan, an increase of 3.66% year on year; net profit to mother was 413 million yuan, up 8.42% year on year. Among them, 23Q4's revenue in a single quarter was 488 million yuan, up 17.13% year on year and 3.16% month on month; net profit to mother was 107 million yuan, up 55.17% year on year, down 5.22% month on month.

The company released its 2024 quarterly report, achieving revenue of 523 million yuan, up 25.90% year on year and 7.18% month on month; net profit to mother was 122 million yuan, up 45.64% year on year and 13.89% month on month.

Key points of investment

Strong demand, 24Q1 sales reached a record high

The tire market continued to pick up in '23, leading to the further release of the company's silica production capacity. The company's annual sales volume was 298,000 tons, an increase of 19.04% over the previous year. In '23, the average price of silicon dioxide in the company was 5,981 yuan/ton, down 9.18% year on year. We believe it was mainly due to the reduction in the price of upstream raw materials. The company's procurement prices for soda ash, quartz sand, sulfur, and solid water glass changed by +2.85%, -12.24%, -46.74%, and -9.59%, respectively, year-on-year in '23. The company's gross profit margin in '23 was 29.44%, up 0.87 PCT year on year; net sales margin was 22.78%, up 1.00 PCT year on year. Looking at a single quarter, 23Q4's revenue continued to grow, with sales up 28.7% year on year and a slight decrease of 1.8% month on month; average price fell 7.7% year on year, up 4.4% month on month. 23Q4 gross profit margin was 33.29%, up 2.40 PCT year on year and 0.88 PCT month on month.

The 24Q1 company's performance was impressive, with a year-on-year increase of 45.64%. Among them, Q1 sold 87,000 tons, up 33.5% year on year and 9.8% month on month, setting a record quarterly high. Q1 The company's gross sales margin was 31.02%, up 3.72 PCT year on year and 2.27 PCT down month on month. Net sales margin was 23.40%, up 3.17 PCT year on year and 1.39 PCT month on month. In 24Q1, the company's inventory turnover ratio was 1.96 and the accounts receivable turnover ratio was 1.07, both of which increased year-on-year.

The prospects for rice husk silica are improving. The company has been supplying in small quantities. According to the company's announcement, the EU Council voted to pass the Carbon Border Regulation Mechanism (CBAM) on April 25, 23. In the import and export process of goods trade, the EU will levy corresponding fees or quotas on imported products with high carbon emissions levels, which will be officially implemented from January 1, 2026. The company's Anhui Axi biomass (rice husk) project uses rice husk instead of natural gas as fuel, and uses rice husk ash produced by burning rice husk as a silicon base instead of quartz sand to produce highly dispersed silicon dioxide, which can greatly reduce carbon dioxide emissions. Currently, rice husk ash high-dispersion silica products have entered the international market in small quantities, and we are optimistic about the future of biomass products.

Projects under construction are progressing steadily, and new production capacity and new products have opened up space for the company's growth. The company currently has a silica production capacity of 330,000 tons and a production capacity of 100,000 tons. It is expected to be completed and put into operation in December '24. At that time, the company's production capacity will increase to 430,000 tons, which is expected to further increase the company's product market share. Furthermore, in recent years, while consolidating production capacity of highly dispersed silica, the company has also developed a series of products such as silicone rubber, oral care, and silica microspheres. The company's current product demand is strong, and the subsequent launch of new production capacity and new products is expected to open up room for the company's growth, and we are optimistic about the continued growth of the company's performance.

Profit forecasting and valuation

The company is a leading domestic white carbon black company. With the gradual increase in the penetration rate of green tires, the company's demand for white carbon black continues to improve. Furthermore, the company lays out silicone rubber and silica products for toothpaste, which is expected to open up new profit margins. The company's net profit for 24-26 is estimated to be 4.99/559.649 million yuan, and the current price is 12.82/11.46/9.86 times PE, maintaining a “buy” rating.

Risk warning

Raw material prices fluctuate greatly; customer development falls short of expectations; production capacity investment falls short of expectations; exchange risks, etc.