Incident: The company disclosed its 2024 quarterly report, achieving operating income of 1,267 million yuan, up 2.50% year on year; net profit to mother of 221 million yuan, up 32.59% year on year; deducted non-net profit of 210 million yuan, up 36.14% year on year. The company disclosed its 2023 annual report and achieved full year operating income of 4.982 billion yuan, an increase of 18.98%; net profit to mother of 776 million yuan, an increase of 25.48% year on year; after deducting non-net profit of 742 million yuan, an increase of 23.07% year on year. Comments on this are as follows:

24Q1 performance maintained high growth, and profitability remained high. Affected by the large year-on-year decline in trade and packaging business, Q1's revenue increased slightly by 2.50%, but the gross margin of the above business was low, which had little impact on the company's profit, and the Q1 net profit growth rate was still high. Q1 The company's main raw materials, soda ash and borax, dropped significantly from the 23-year average price, and the price of quartz sand also dropped slightly, which led to an increase in the company's profitability. The company's gross margin/net margin was 30.59/ 17.42% respectively, up 6.94/3.95pct year-on-year respectively.

Q1 The company's net operating cash flow was 296 million yuan, an increase of 40.66% over the previous year, mainly due to an increase in cash received from sales of goods and provision of services in the current period. The company's expenses rate for the period was 8.91%, an increase of 1.45 pct over the previous year. Among them, the sales/management (including R&D) /financial expense ratios were 2.28/7.52/ -0.88%, respectively, with year-on-year changes of +0.29/+1.97/-0.80pct.

The main products continued to gain strength, and the annual performance was improving. 1) Accounting and expenses disrupt Q4 performance. In Q4 2023, the company achieved operating income of 1,308 billion yuan, up 9.16% year on year; net profit to mother 162 million yuan, up 30.84% year on year; deducted non-net profit of 151 million yuan, up 24.69% year on year. Q4 There was a month-on-month decline in performance, mainly due to partial asset impairment, profit growth rewards, and partial repair costs due to untimely payment by the recipient in the previous period. The company's performance growth rate in 2023 met the incentive fund accrual requirements, so the incentive fund was withdrawn at RMB 347.541 million. Q4 accrued asset impairment losses of 309.66,400 yuan, a significant increase over the previous month and a slight decrease of 1.68% over the previous year. 2) The main products continue to gain strength, and the overseas market is growing. By product, in 2023, the company's revenue for molded product series/brown bottles/butyl rubber stoppers series/control bottles/ampoules was 22.64/11.18/2.56/2.05/73 billion yuan respectively, up 29.36/29.10/12.66/18.05/ 24.42% year-on-year respectively. Sales of molded product series/brown bottle/butyl rubber stopper series/control bottle/ampoule increased by 23.65/28.73/13.63/19.56/ 13.21%, respectively. By region, domestic/overseas revenue was 35.77/1,360 billion yuan respectively, up 17.08/ 26.44% year-on-year respectively. 3) Profitability improved year over year. In 2023, the prices of raw fuels such as soda ash, coal, and natural gas declined slightly, and the share of borosilicate products with high gross margins continued to rise, driving the company's gross margin upward. The gross margin/net margin for the whole year was 28.03/ 15.57%, respectively, up 1.19/0.80 pct. 4) Cash flow improved significantly, and the expense ratio increased slightly. In 2023, the company's net operating cash flow was 1,048 billion yuan, an increase of 315.14% over the previous year, mainly due to an increase in cash received from the sale of goods and services in the current period. The cost rate for the period was 8.79%, an increase of 0.44pct year-on-year. Among them, the sales/management (including R&D) /financial expense ratios were 2.96/6.54/ -0.72%, respectively, with year-on-year changes of +0.32/-0.22/+0.33pct.

Production capacity construction is progressing steadily, and there is broad room for growth in borosilicate. As consistency evaluation and collection continue to be promoted, demand in the borosilicate market increased, and the company continued to promote production capacity construction. In 2023, the company built a borosilicate molded bottle plant workshop (with two kilns), and 1 of these kilns was put into operation in November 2023. According to the company's investor relations activity record table, by the end of 2023, the company had a production capacity of 15-1.6 billion first-class molded bottles. In Q1 '24, the company once again put into production a 60T electric melting furnace. Strong market demand for borosilicate products and high gross margins are expected to continue to drive the company's performance upward.

Investment advice: Performance growth is relatively good. Borosilicate products continue to gain strength and maintain the rating of increasing holdings. The company's net profit from 2024 to 2026 is estimated to be 995 million yuan, 11.96 billion yuan, and 1,415 million yuan, respectively, up 28%, 20%, and 18% year-on-year, respectively. The corresponding valuations are 19, 15, and 13 times, respectively. With the advancement of policies such as consistency evaluation and related approval, the market demand for medicinal glass, especially borosilicate glass, will grow rapidly. The company has been deeply involved in the industry for many years. Borosilicate molded bottles have a high market share and obvious scale advantages; the high technical barriers of borosilicate glass and the high viscosity of customers have built a solid moat for the company.

Risk warning: Policy implementation falls short of expectations; industry competition increases risk; risk of rising raw material prices; risk of rising shipping costs; risk of project construction falling short of expectations.