Event: The company released its 2024 quarterly report. With 2024Q1, the company achieved revenue of 1,354 billion yuan in a single quarter, up 14.17% year on year and 4.71% month on month; realized net profit of 107 million yuan, up 29.19% year on year and 34.75% month on month; realized net profit after deduction of 98.73 million yuan, up 23.56% year on year and 33.49% month on month.
Comment:
Sales growth was compounded by improvements in gross profit, and 24Q1 company's profit increased year-on-month. Benefiting from the further volume of new production capacity such as antioxidants and Kangtai Lubricant Additives Phase II at the Zhuhai base, combined with a reduction in raw material costs, 24Q1's profitability improved, and profits grew year on month. In terms of production, the company's production capacity utilization rates for anti-aging agents and lubricant additives in '23 were 59.2% and 38.6%, respectively, and there is still plenty of room for improvement. In terms of gross margin, the 24Q1 company's overall gross margin was 21.4%, up 2.35 pct year on year and 0.11 pct month on month. We believe that the increase in the company's gross margin is due, on the one hand, to a drop in raw material prices, and on the other hand, to a steady rise in the prices of the company's anti-aging products. In terms of cost ratio, 24Q1 company's sales, management, R&D, and finance expenses were 2.78%, 4.11%, 4.54%, and 0.78%, respectively, with year-on-year changes of +0.17pct, +0.37pct, +1.72pct, and -0.15pct, respectively.
Consolidate the basic market of anti-aging agents and lubricant additives, and develop new fields of life science and PI materials. In terms of anti-aging agents, the company currently has a production capacity of 214,400 tons/year of anti-aging additives, and is also promoting a 30,000 tons/year antioxidant production expansion project at the Zhuhai base. The project is expected to be completed and put into operation in July '24. After completion, the antioxidant production capacity of the company's Zhuhai base will be further expanded. While further boosting the company's market share, it will also reduce the unit production cost of antioxidants at the company's Zhuhai base. In terms of lubricant additives, the Jinzhou Kangtai Phase II 50,000 tons/year lubricant additive project was completed and put into operation in February '23, and the company's lubricant additive production capacity (excluding intermediates) increased to 133,000 tons/year. In terms of life science business, the company completed trial production of major nucleic acid drug raw materials in July '23, and the product quality reached a leading international position. In addition, the company's synthetic biology projects such as rhododendron and polyglutamic acid are progressing smoothly. In terms of PI materials, in January '24, the company issued an announcement stating that it intends to indirectly acquire Korean IPI, which is at the cutting edge of PI materials technology, and will build a domestic R&D base and production capacity to lay the foundation for the company's development into advanced electronic grade new materials.
Profit forecasting, valuation and ratings: Benefiting from the continuous release of new production capacity such as anti-aging agents and lubricant additives, compounded by a decline in raw material costs, 24Q1's gross margin improved, and profits achieved year-on-month growth. 24Q1's performance is in line with expectations. We maintain the company's 24-26 profit forecast. The company's net profit for 24-26 is estimated to be RMB 4.61/6.06/757 million yuan, respectively. The company is based on the two major businesses of anti-aging agents and lubricant additives, while also opening up new fields such as life science and PI materials, which will promote the company's long-term positive development and maintain a “buy” rating.
Risk warning: Product and raw material prices fluctuate, downstream demand falls short of expectations, capacity construction risks.