Key points of investment:
24Q1 revenue also increased by 52.03%, while net profit to mother also increased by 136.01%. The company disclosed its annual report for the year 23 and the quarterly report for '24: in '23, the company achieved revenue of 1,721 billion yuan, compared to -12.90%. Overall sales declined due to fierce competition in the export market and inventory removal from overseas customers; net profit to mother was 45 million yuan, -74.69% year over year; net profit without return to mother was 0.18 million yuan, -88.49% year over year. 24Q1 achieved revenue of 499 million yuan, +52.03% year over year; realized net profit of 43 million yuan, +136.01% year over year; realized net profit without deduction of 10 million yuan, +8.28% year over year. The decline in non-net profit deducted by the company was mainly due to factors such as 1) a decline in export revenue, low capacity utilization, and an increase in manufacturing expenses; 2) impairment of goodwill accrued by the two subsidiaries acquired in 23; 3) new investment projects were not put into operation or production capacity was not fully released, and fixed upfront investment costs increased; 4) the financial accrued interest expenses of the company issued convertible bonds in '24.
Biodegradable products added value and increased efficiency, and the business share increased exponentially. By product, plastic products achieved revenue of 1,301 billion yuan, or -21.53% year-on-year, accounting for -8.32pct to 75.59% of revenue; cumulative sales of biodegradable products totaled 262 million yuan, accounting for +8.15pct to 15.24% of revenue; vegetable fiber products sold a total of 93.92 million yuan, accounting for 5.46% of business, +0.92pct; paper products and others achieved revenue of 63.87 million yuan, accounting for a decrease of 0.76pct to 3.71% of revenue. The restructuring of export trade will not change the development path of degradable products. Plastic restrictions and plastic reduction are imperative, and the biodegradable products business accounts for a remarkable growth rate.
The high growth in the Asian market and the high growth of domestic sales “evenly split the fall”. Due to overseas inventory removal, export orders have decreased, and the share of domestic sales has increased. The company's export sales in '23 were -35.21% year-on-year, and the share of business decreased by 19.76pct to 57.40%; domestic sales were +62.50% compared to the same period last year, accounting for 42.60% of revenue. In terms of revenue from different overseas regions, North America is still the company's key overseas market. Among them, North America/Europe/Oceania/Asia (excluding mainland China) achieved revenue of 7.44/1.54/0.49/30 billion yuan respectively in 23 years, which was -37.40%/-37.30%/-15.70%/+126.79%, respectively.
The scale effect decreased, cost amortization increased, and gross margin declined. The company's overall gross margin in '23 was 3.01pct to 19.23%. By product, the gross margin of plastic products in 23 years was 20.01%, compared to the same period last year - 2.69 pct; the gross margin of biodegradable products was 18.27%, -5.12 pct year on year. By sales model, domestic sales gross profit in 2023 was 14.25%, -2.32pct year on year; gross margin of export sales was 22.93%, -0.98pct year on year.
Profit forecast and investment advice: Exhaustion of negative factors in export sales, overseas order recovery, and significant 24Q1 performance growth rate. Based on 24Q1 performance, we adjusted the company's 24-25 profit forecast. The company's net profit for 24-26 is estimated to be 1.81/2.06/259 million yuan, respectively (the original forecast value was 1.54 to 189 million yuan), corresponding to the current stock price PE 21/19/15 times, respectively. Considering the company's leading edge in biodegradable circuits, export repair, and the continuous strengthening of the company's in-depth cooperation with the domestic market, it was reasonably given 26 times PE in 24 years, corresponding to a target price of 24.44 yuan, maintaining a “buy” rating.
Risk warning
Risk that overseas demand recovery falls short of expectations; production capacity investment falls short of expectations; fluctuation in raw material prices; exchange rate risk; risk of negative impact of poor performance on valuation premiums; risk of market competition.