Incident: On April 26, 2024, the company released its 2024 quarterly report. In 24Q1, it achieved operating income of 532 million yuan (+23.07%), net profit attributable to mother of 88 million yuan (+11.49%), after deducting net profit of 81 million yuan (+37.35%).

The company's product production and sales were strong during the reporting period, which led to an increase in overall performance. 24Q1's production of surfactants for specialty functional and polymer materials was 40,900 tons, and sales volume was 40,400 tons. The total production and sales volume of the large and small variety sectors increased by 12.12% and 25.54%, respectively, compared with last year. Among them, the high-end functional electronic chemicals segment, which includes functional electronic chemicals, UV light curing, surfactants for wet electronic chemicals, etc., and the functional new material resin segment, which includes new energy glue resins, MS resins, polyimide resins, polyether amines, etc., sold a total of 106,000 tons, achieving revenue of 140 million yuan, accounting for 26.33% of total revenue. In addition, the average sales price of 24Q1's products was 13,300 yuan/ton, down 2% year-on-year from 13,400 yuan/ton in the same period in '23, or related to changes in product structure.

In terms of profitability, 2024Q1's gross margin was 24.22%, up 0.04 pct year on year, down 1.89 pct month on month; the company's net margin was 16.53%, down 1.72 pct year on year, down 1.91 pct from month to month. Cost control capabilities continued to be strengthened. The cost rate during the reporting period was 6.58%, down 2.31 pct year on year. Among them, the management fee rate decreased by 0.82 pct year on year and the financial expense ratio decreased by 0.67 pct year on year; during the period, the cost rate decreased by 0.6 pct month on month, of which management expenses decreased by 0.33 pct month on month.

Continue to promote repurchase plans to demonstrate confidence in development. In April 2023, the company announced that it intends to repurchase shares with a total capital of not less than RMB 40 million and no more than RMB 80 million. The repurchase price will not exceed RMB 18 per share, which is planned to be used for subsequent employee stock ownership plans. As of April 26, 2024, the share repurchase period has expired for 12 months. The number of shares repurchased by the company through centralized bidding transactions was 8,480,000 shares, accounting for 1.44% of the company's total share capital. The highest transaction price was 10.89 yuan/share, and the lowest transaction price was 8.01 yuan/share. The repurchase was completed according to the disclosed plan. Prior to that, the company implemented 3 share repurchase plans in 2019, 2021, and 2023, respectively, with total capital of 36 million yuan, 53 million yuan, and 209 million yuan, respectively. Multiple stock repurchase plans help enhance the company's value and enhance investor confidence. At the same time, implementing employee incentive plans also helps to fully mobilize employees' enthusiasm and creativity, and improve the company's long-term and effective incentive and restraint mechanism.

The three factory areas have an orderly production capacity layout, laying a solid foundation for the company's medium- to long-term development. The company currently has three major factory areas: Lukean, Real Madrid Shangyi, and Real Madrid Kaimeike. Among them, after withdrawing from the production of the large variety of water reducing agents, Lukean carried out technical changes to the original large variety workshop and transferred to other main product lines. The technical improvement project with an annual output of 90,000 tons of polyether amine is expected to be completed in the first half of '24; Real Madrid Shangyi achieved part of the production capacity of 30,000 tons during the reporting period. The current design capacity is 130,000 tons/year; the construction of the Real Madrid Kaimeike project (phase I) successfully started construction during the reporting period. December 31, 2023, Project (administrative district, public area) building The main body has been topped up, and façade decoration work is underway. The company actively promotes production capacity construction and continues to expand its product matrix. As growth products are gradually put into production, it is expected to continue to drive the company's performance growth and lay the foundation for medium- to long-term sustainable development.

Investment advice: We expect the company to achieve operating income of 25.24/29.35/3.355 billion yuan in 2024/2025/2026, with a year-on-year increase of 33.23%/16.31%/14.31%, and net profit to mother of 4.19/5.40/636 billion yuan, an increase of 29.01%/28.91%/17.84% year-on-year. The current stock price corresponding to 2024/2025/2026 PE is 15.16/11.76/9.98X, respectively, maintaining the “Highly Recommended” rating.

Risk warning: risk of market competition; risk of fluctuations in raw material prices; risk of production expansion falling short of expectations.