The company released the 2023 annual report and the 2024 quarterly report: 1) Achieved revenue of 550 million yuan (YoY -19.2%) in 2023, and realized net profit of 76.91 million yuan (YoY -49.3%), and realized net profit of about 53.69 million yuan (YoY -58.1%); of these, 23Q4 achieved revenue of 186 million yuan (YoY -31.85%, QoQ +45.8%), and achieved net profit attributable to mother of 33.63 million yuan (YoY -48.6%, 23Q3 about 4.06 million yuan) The net profit for mother was about 15.62 million yuan (YoY -72%, 23Q3 about 3.59 million yuan), and the performance was basically in line with expectations. 2) The first quarter of 2024 achieved revenue of 199 million yuan (YoY +61.2%, QoQ +7.2%), realized net profit of 3.57 million yuan (23Q1 about 2.05 million yuan, QoQ +4.3%), and realized net profit of 34.33 million yuan (23Q1 about 1.23 million yuan, QoQ +120%). Performance slightly exceeded expectations. The increase in Q1 month-on-month was mainly due to a significant increase in sales volume due to the recovery of BASF's denitrification molecular sieve orders.

Affected by market orders in 2023, denitrification molecular sieve sales fell short of expectations, leading to a year-on-year decline in revenue and profit; catalyst series products gradually increased.

In 2023, due to changes in BASF's own share and the impact of storage removal, the company's denitrification molecular sieve sales declined year-on-year; in addition, after HPPO catalysts were supplied to satellites in 2022, export orders increased in 2023, but overall sales declined slightly year-on-year. According to the company's annual report, the annual sales volume of the special molecular sieve and catalyst series was about 2,848 tons, a year-on-year decrease of 30.83%, resulting in a 31% year-on-year drop of revenue for special molecular sieves and catalysts to 440 million yuan in 2023, and gross margin of 6.61 pct to 32.6% year-on-year. In terms of non-molecular sieve catalysts, the company deployed multiple products at the same time, selling various metal catalysts such as iron-molybdenum catalysts, nickel-copper catalysts, hydrogen peroxide catalysts, etc. In 2023, the non-molecular sieve catalyst series revenue was about 81.5 million yuan, an increase of 280% over the previous year, and the gross margin decreased by 1.2 pct to 15.93% year on year. In terms of technology revenue, technology revenue increased 75% year over year to 24.6 million yuan due to the confirmation of the satellite HPPO catalyst process package. Overall, the company's gross margin fell 6.81 pct to 32.83% year-on-year in 2023 due to the impact of sales volume and capacity utilization of major molecular sieve catalyst products such as denitrification zeolite. On the cost side, the overall sales expense ratio, management expense ratio, and R&D expense ratio increased 4.75 pcts year over year, mainly due to equity incentive expenses of 17.21 million yuan. In addition, investment income increased by 17 million yuan and government subsidies decreased by 11.7 million yuan in 2023. Overall, the net profit margin decreased by 8.31 pct to 14% year over year.

Demand for 23 Q4 denitrification zeolite and catalyst products gradually increased, and gross margin declined markedly due to early maintenance costs. In the fourth quarter, the company's sales volume of various products, especially some catalyst products, began to contribute, and revenue increased month-on-month, but costs increased markedly due to expenses arising from maintenance and repair of some installations in September, which affected the decline in gross margin by about 10 pct to 21.91% month-on-month. On the cost side, mainly due to investment income of 20 million yuan, the net profit margin increased by 15 pct to 18.13% month-on-month. Sales of 24Q1 denitrification zeolite rebounded markedly, leading to a simultaneous increase in revenue and profit.

Sales of denitrified molecular sieves rebounded markedly in the first quarter due to BASF's basic completion of storage and a steady increase in its share. Furthermore, the company previously cooperated with BASF to jointly develop “Euro 7” emission standard zeolite products. It is expected that the “Euro 7” emission standard will be implemented on July 1, 2025, which is expected to bring incremental demand for molecular sieves. The company signed a procurement agreement with BASF in the early stages, and the product sales area expanded globally, so it is expected that sales of denitrification molecular sieves will continue to increase in the future as demand grows in emerging markets such as India, Thailand, Europe, and South Africa. In 24Q1, the company's gross margin increased by 5.97 pcts year on year and 15.7 pcts month over month to 37.61%. On the cost side, the net profit margin increased 15.97 pct year on year and decreased 0.5 pct to 17.63% month on month due to a month-on-month decrease in return on investment.

In the field of high added value, the products produced cover many industries, reserves and products under development guarantee long-term development. By the end of March 2024, the company's projects under construction increased by 54.62 million yuan to 337 million yuan compared to the end of 2023. The main projects include fund-raising projects such as special molecular sieves, environmentally friendly catalysts, automobile exhaust purification catalysts industrialization projects, and ultra-high purity quartz material projects with an annual output of 3,000 tons. The products currently sold by the company mainly cover the environmental protection industry and high value-added fields of energy and fine chemicals, including mobile source denitrification, fixed source denitrification, petroleum catalytic cracking, olefin isomerization, capropane, pyridine, etc. Currently, various metal catalysts are flourishing in many places. At the same time, Forward-looking Reserve next-generation catalyst products include methanol-to-olefin (MTO) catalysts, methanol-to-propylene (MTP) catalysts, ethylene glycol catalysts, etc., and is also expanding the layout to downstream products such as mesocresol.

Profit forecast and investment rating: Mainly considering that it will take a long time to promote the catalyst business, the main assumption is that the sales volume of titanium-silicon zeolite and some catalyst products will be lowered, and the profit forecast for 2024-2025 will be added. The net profit for the three years is estimated to be about 1.6, 2.0 (original forecast 2.1 million yuan, 280 million yuan) and 250 million yuan, corresponding to PE about 23, 19, and 15 times, respectively. Refer to the Catalytic Materials Company's PE in 24 (Wind agreed expectations) to maintain the “increase” evaluation grade.

Risk warning: catalyst customer expansion falls short of expectations; denitrification molecular sieve orders fall short of expectations; domestic heavy truck sales fall short of expectations