Incidents:
On April 23, 2024, Convergence Shun released its report for the first quarter of 2024: Q1 of 2024 achieved operating income of 1,639 million yuan, +28.49% year over month, -0.14% month on month; realized net profit of 70 million yuan, +40.06% year on month, +50.85% month on month; realized net profit after deduction of 64 million yuan, +29.63% year on month, +42.07% month on month; gross sales margin of 7.94%, +0.35 pcts year over month; net sales profit margin 5.01%, +0.94 pcts year on year, +1.93 pcts month on month; net cash flow from the company's operating activities in the first quarter of 2024 was -314 million yuan, turning negative month on month; at the end of the first quarter of 2024, the company's inventory amount was 441 million yuan, -5.77% year on year, +77.88% month on month.
Investment highlights:
The sales price of nylon chips rose sharply. In Q1 of 2024, profit improved in the Q1 quarter of 2024, and the company achieved operating income of 1,639 billion yuan, +28.49% year over month, -0.14% month on month; the company achieved output of 125,300 tons, +14.07% year on month; sales volume 121,000 tons, +15.98% year on month, -3.95% month on month; average price 13,500 yuan/ton, +11.02% year on month and 3.89% month on month.
In the Q1 quarter of 2024, net profit to mother was 70 million yuan, +40.06% year-on-month, and +50.85% month-on-month, mainly due to an increase in sales volume and product prices; gross sales margin of 7.94%, +0.35 pcts year-on-month, +1.74 pcts month-on-month; net sales margin of 5.01%, +0.94 pcts year-on-month, +1.93 pcts month-on-month; sales expense ratio was 0.14%, -0.07 pcts year-on-month, and +0.05 pcts month-on-month; management expenses ratio was 0.51%, same Compared to -0.09 pcts, -0.24 pcts month-on-month; R&D expense ratio was 2.85%, -0.04 pcts year-on-month, +0.60 pcts month-on-month; financial expense ratio was -0.68%, +0.18 pcts year-on-month, and -0.24 pcts month-on-month; in the Q1 quarter of 2024, the net cash flow from the company's operations was -314 million yuan, negative month-on-month; at the end of the first quarter of 2024, the company's inventory value was 441 million yuan, -5.77% year-on-month, +77.88% month-on-month.
Expand nylon 6 production capacity and expand nylon 66 field layout
In 2023, in the face of changes in the domestic and foreign macroeconomic environment and PA6 product market, the company actively exploited the joint advantages of multiple varieties and multiple production bases to maintain steady development of production and operation. The company's “R&D Center” project progressed smoothly, and nylon 66, nylon 66 and nylon 6 copolymer products were put on the market one after another and received market recognition. Production equipment for the convertible bond project “180,000 tons of polyamide 6 new materials project with an annual output of 180,000 tons” has been installed and trial operation has been carried out, and production capacity will be gradually released in 2023. By the end of 2023, the company's nylon 6 production capacity reached 510,000 tons. The company's project under construction in Hangzhou is 124,000 tons (nylon 6, nylon copolymerization, etc.), which is expected to be completed in 2024; the first phase of the Zibo plant (nylon 66) is 80,000 tons, which is expected to be completed in 2025; the second phase of the Tengzhou plant (nylon 6) is 180,000 tons, which is expected to be completed in 2026.
Consumption upgrade+high-end manufacturing. Increased demand for high-end nylon materials has benefited from a breakthrough in the bottleneck in the upstream raw material caprolactam supply. The self-sufficiency rate of raw materials has increased dramatically, compounded by the development of downstream fields and advances in PA6 polymerization production technology, and the rapid development of China's PA6 industry. According to Zhuochuang data, in 2023, China's PA6 production and apparent consumption were 4.815,900 tons and 4.5598 million tons respectively, up 8.63% and 7.53% year-on-year respectively. With the upgrading of domestic consumption and the high-quality development of the manufacturing industry, demand for outdoor sportswear such as jackets rises, and the market space for high-end products in civilian fiber is broad; the development of China's automobile, electronics, machinery, high-speed rail and other industries will drive the increase in demand for high-end, high-performance nylon 6 engineering plastics; demand in the food packaging sector will drive the film industry into a healthy development path.
Profit forecast and investment rating We expect the company's 2024-2026 revenue to be 80.40, 106.80, and 14.288 billion yuan, respectively, and net profit to mother of 2.75, 3.56, and 462 million yuan, respectively, corresponding to PE 13.11, 10.14, and 7.81 times, respectively. The company focuses on the high-end nylon market, and the production capacity of projects under construction is expected to gradually contribute to increased performance. As downstream demand gradually picks up and demand for outdoor apparel increases, the company is expected to usher in rapid development and maintain a “buy” rating.
Risks indicate fluctuations in raw material prices; increased industry competition; changes in environmental protection supervision and energy control policies; exchange rate risks; and progress in the construction of new production capacity falls short of expectations.