Incident 1: The company released its 2023 annual report. In 2023, the company achieved revenue of 537 million yuan, a year-on-year decrease of 24.73%; realized net profit of 23.92 million yuan, a year-on-year decrease of 80.10%; realized net profit of 19.2 million yuan after deduction, a year-on-year decrease of 83.53%. With 2023Q4, the company achieved revenue of 123 million yuan in a single quarter, down 9.13% year on year and 8.21% month on month; realized net profit of 2.51 million yuan, down 84.15% year on year and 51.98% month on month.

Incident 2: The company released its 2024 quarterly report. With 2024Q1, the company achieved revenue of 103 million yuan, a year-on-year decrease of 28.13% and a decrease of 16.32%; realized net profit of 1.19 million yuan, a year-on-year decrease of 81.01% and a decrease of 52.56% month-on-month; realized net profit of 115,000 yuan after deduction, a year-on-year decrease of 97.63% and a decrease of 61.81% month-on-month.

Comment:

Prices of aliphatic amines and optical materials fell, putting pressure on the company's performance. Due to weak downstream demand, the prices of the company's main products, fatty amines and optical materials (isobornyl acrylate, isobornyl methacrylate) fell in 2023, putting pressure on overall performance. In 2023, the company's revenue for polyether amines and optical materials was 352 million yuan and 184 million yuan respectively, a year-on-year decrease of 28.4% and 16.7%, respectively. In terms of price, the average sales price of polyether amines and optical materials in '23 was 17,000 yuan/ton and 34,400 yuan/ton, respectively, down 37.8% and 33.7% year-on-year, respectively. Due to falling prices of polyether amines and optical materials products, the gross margins of the company's polyether amine and optical materials business decreased by 19.3 pct and 8.9 pct, respectively, year-on-year. In terms of sales, sales of polyether amines and optical materials in '23 were 20,700 tons and 5,347 tons, respectively, up 15.2% and 25.7% year-on-year, respectively. In terms of expenses, the company's sales, management, and R&D expenses decreased by 35.7%, 22.0%, and 18.9%, respectively, year-on-year in '23, and the corresponding cost rates changed by +0.06pct, +0.50pct, and -0.70pct, respectively.

2024Q1, due to the impact of polyether amine plant maintenance, the company's polyether amine sales decreased year on year, but sales of optical materials continued to grow. In 24Q1, the company's sales volume of polyether amines and optical materials was 3,744 tons and 1,449 tons, respectively, with year-on-year changes of -30.9% and +21.5%, respectively. The average prices of polyether amines and optical materials were 161,000 yuan/ton and 29,400 yuan/ton, respectively, down 8.3% and 27.1% year-on-year, respectively.

Lay out new high-end optical materials COC/COP to expand applications in the fields of optics and medicine. The company signed a contract with the Jianghan Salt Chemical Industrial Park Management Committee of Qianjiang High-tech Industrial Development Zone in Hubei Province in October 2022 to invest 1.05 billion yuan to build a project with an annual output of 20,000 tons of polyether amine and 30,000 tons of optical materials (COC/COP) in the Qianjiang Jianghan Salt Chemical Industrial Park. 2023Q3, all pre-construction procedures of the project have been completed, and the actual construction phase has entered. By the end of 2023, all underground parts of the project had been completed. The company addresses the different needs of customers in different industries, explores customer resources in segmented industry markets, develops product development and promotion, formulates differentiated marketing strategies, continuously expands new downstream application fields, and further strengthens industrial chain collaboration and R&D collaboration with downstream customers. As of September 2023, the company has carried out preliminary work such as product certification and testing and signed intended cooperation agreements with many well-known enterprises in the downstream application field. Downstream customer products cover mobile phone optical lenses, optical components, high-end medical packaging materials (Xilin bottles), etc., with a wide range of downstream application scenarios.

Profit forecasting, valuation and ratings: Due to falling prices for main products such as polyether amines and optical materials, the company's overall gross margin declined significantly in 2023. Performance was under pressure, but it was basically in line with previous expectations. We maintain the company's 24-25 profit forecast and add a 26-year profit forecast. The company's net profit for 24-26 is estimated to be 0.49 million yuan, 0.83 million yuan, and 136 million yuan, respectively. The company is one of the leading enterprises in the domestic polyether amine field, and also has a high-end optical material COC/COP. With the improvement in the profitability of polyether amines and the release of COC/COP products, the company's profit situation is expected to improve and maintain the “gain” rating.

Risk warning: Downstream demand falls short of expectations, risk of raw material price fluctuations, capacity construction falls short of expectations, COC/COP product promotion risk.