Company announcement: The company released its 2023 annual report. During the reporting period, it achieved operating income of 5.278 billion yuan (YoY +9.0%), net profit of 362 million yuan (YoY -31.05%), net profit of 344 million yuan (YoY -33.17%); of these, 23Q4 achieved operating income of 1,421 billion yuan (YoY +13.84%, QoQ +5.1%) and net profit of 80 million yuan (YoY -12.25%, QoQ -20%), net profit not attributable to mother Yuan (YoY -16.9%, QoQ -21.28%), the performance was basically in line with expectations. The Q4 gross profit margin for the single quarter was 21.27%, up 1.52 and 2.16 pct from month to month, respectively. In addition, in the fourth quarter, there was an inventory price drop of 35.818 million yuan and a credit impairment of 12.72 million yuan, resulting in the company's net interest rate falling 1.31 and 1.61 pct from month to month to 5.65%, respectively. In terms of expenses, the company increased R&D investment in the fourth quarter. R&D expenses in a single quarter reached 95.1 million yuan, an increase of 57.236 million yuan over the previous quarter. The 2023 profit distribution plan is to distribute cash dividends of RMB 3.44 (tax included) for every 10 shares, with a total cash dividend of approximately RMB 78.989 million, without bonus shares.
The bottom of the anti-aging additives industry is shaking, backward production capacity is being cleared at an accelerated pace, and the company's market share continues to rise. Due to the large increase in production capacity in the industry, compounded by weak global demand, short-term competitive pressure intensified, and the bottom of the product boom continued to fluctuate. However, with advantages such as product quality, channel, and innovation, the company continues to expand production and sales scale. According to the company announcement, the first phase of the Zhuhai base 60,000 tons/year antioxidant, 5,500 tons/year light stabilizer at the Inner Mongolia base, and the 3200 tons/year light stabilizer device at the Hengshui base gradually reached production. The subsequent 30,000 tons/year production expansion plan in Zhuhai is expected to be put into operation in July 2024. The sales volume of the company's anti-aging additives reached 116,200 tons in 2023, an increase of 25.74% over the previous year, and the market share continued to increase.
By product, the company's antioxidants, light stabilizers, and U-Pack achieved revenue of 1,602 million yuan, 18.74 billion yuan, and 638 million yuan respectively, with year-on-year changes of -2.7%, +0.3%, and +23.2%, respectively. Although product prices continued to decline, the company made up prices by volume, and revenue remained stable. The company has six major production bases in Tianjin, Zhongwei, Hengshui, Changshan, Zhuhai and Inner Mongolia. It already has dual base guarantee and supply capabilities for a single product, supporting the stability of the company's main business.
The performance gamble was completed, the second phase of the project was completed and implemented, and lubricant additives began a second growth curve. According to the company announcement, 2022H1 completed the merger and acquisition of Jinzhou Kangtai Lubricant Additives Co., Ltd., holding a total of 99.82% of Kangtai shares, and officially entered the 100 billion market for lubricant additives. In 2023, the subsidiary officially completed the 2021-2023 three-year performance gamble, promised performance of 169.5 million yuan, and actually achieved performance of 175 million yuan, with a completion rate of 103.2%. Kangtai currently has a total production capacity of 133,000 tons/year, with a total production capacity of 103,000 tons/year for single agents and 30,000 tons/year for compound agents. The second phase of the 50,000 tons/year project has gradually begun to be released, contributing to the increase in profits. With the release of new production capacity, the company is expected to make up for the shortcomings of the previous shortage of single agent categories, compounded by the restructuring of the global lubricant additive supply chain brought about by the anti-globalization trend. The scale and profit of the company's lubricant additives business are expected to increase simultaneously.
The third growth curve is beginning to show scale, adding the electronic grade PI materials business, and opening a new growth pole. The company's third growth curve life science division includes the biological block industry with Orif and Olive as carriers and the synthetic biology industry with the synthetic biology research institute as the core. 23Q1 successfully achieved trial production in a 6-ton nucleic acid monomer pilot plant. Q4 received the first batch of orders, and the third growth curve began to show scale. At the same time, the company plans to increase capital to Yixing Chuangju with free capital of 200 million yuan. After the capital increase is completed, it will hold 51.1838% of Yixing Chuangju's shares, adding electronic grade PI materials business to the company. The remaining capital increase will be used by Yixing Chuangju to build a YPI production line and TPI coating line to support the company's gradual expansion into the upstream core materials industry for the manufacture and use of flexible OLED display screens and flexible circuit boards (FPCs), chip packaging, and power batteries, which is expected to open up a new growth curve for the company.
Profit forecast and valuation: Maintaining the company's profit forecast for 2024-2025, it is expected to achieve 4.95 million yuan and 597 million yuan. At the same time, profit forecasts for 2026 were added. The net profit to mother is expected to be 708 million yuan. The corresponding PE valuations are 12X, 10X, and 9X, respectively, maintaining the “increase” rating.
Risk warning: 1) Raw material prices fluctuate greatly; 2) Downstream demand falls short of expectations.