Incident: The company recently released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 2,811 billion yuan, or -35.29%; realized net profit attributable to mother/ net profit of 0.779/108 million yuan, respectively, -82.60%/-77.45% year-on-year, respectively; net cash flow from operating activities was -323 million yuan, which turned negative year on year. In the first quarter of 2024, the company achieved operating revenue/net profit of 888/029 million yuan respectively, -3.09%/-59.23% year-on-year, respectively, reversing losses from month to month.

The fall in crude oil and vegetable oil prices in 2023 was compounded by the EU initiating a trade friction investigation. The company's biodiesel volume and price fell sharply, leading to a year-on-year decline in revenue and profit. The company's operating revenue/net profit in 2023 was -35.29%/-82.60%, mainly due to the sharp drop in the company's biodiesel sales volume and price. International crude oil and vegetable oil prices fell in 2023. At the same time, the EU carried out anti-avoidance and anti-dumping investigations against the Chinese biodiesel industry, so the company's biodiesel sales price was -25.90%. At the same time, starting in 2023Q4, the company actively responded to EU investigations, focused on high-quality markets, and built an independent sales network in Europe, and established deep cooperative relationships with new and old local end users. During the launch phase, a large number of products were in transit, resulting in the company's biodiesel sales volume of -13.07% year-on-year in 2023.

Continue to increase investment in product research and development, and actively explore marine fuel and other market development. Faced with EU scrutiny, the company continues to strengthen product development and actively explore market opportunities. In 2023, the company established 17 R&D projects, invested 149 million yuan in R&D, and has a total of 199 authorized patents, ranking among the highest in the industry. In November 2023, the National Energy Administration organized a pilot demonstration declaration for biodiesel promotion and application. The “Xiamen Excellent Marine Biodiesel Application Demonstration Project” jointly declared by the company and partner Xiamen Haiao Group has been included in the National Energy Administration's biodiesel promotion and application pilot publicity list; on January 13, 2024, Excellent New Energy signed a strategic cooperation framework agreement with Sinopec CNOOC Marine Fuel Supply Co., Ltd., which will make full use of the superior resources of both parties to further strengthen the cooperation and promotion application of biodiesel in marine fuel oil and other fields.

At the end of 2023, the production capacity of raw firewood was 500,000 tons/year, and future capacity expansion will continue to advance steadily. In 2023, the second line of the company's Meishan plant was successfully put into operation, and production capacity was released in an orderly manner. By the end of 2023, the company's biodiesel production capacity had reached 500,000 tons/year and 90,000 tons/year of bio-based materials; at the same time, the company's production capacity expansion was progressing steadily. Currently, 100,000 tons/year hydrocarbon-based biodiesel, 50,000 tons/year fatty acid projects, and 100,000 tons of synthetic resin projects are still in the early stages of construction.

Profit forecast: First coverage, giving the company an “gain” rating. We expect that in 2024-2026, the company will achieve operating income of 31.64/35.96/4.237 billion yuan, and net profit to mother of 129/1.66/ 237 million yuan respectively, and corresponding PE of 25.09x/19.49x/13.68x, respectively.

Risk warning: Changes in the macroeconomic situation at home and abroad have exceeded expectations, biodiesel demand growth has fallen short of expectations, product prices have fluctuated sharply, profit forecasts and valuation models have fallen short of expectations