occurrences
On April 26, 2024, Xinhua Co., Ltd. released its 2023 annual report: in 2023, the company achieved operating income of 2,597 billion yuan, a year-on-year decrease of 3.23%; realized net profit of 253 million yuan, a year-on-year decrease of 23.27%; and the weighted average return on net assets was 11.93%, a decrease of 6.41 percentage points over the previous year. The gross profit margin on sales was 23.26%, down 0.31 percentage points from the previous year; the net profit margin was 11.12%, down 2.65 percentage points from the previous year.
At the same time, the company released its 2024 quarterly report. In the first quarter of 2024, the company achieved operating income of 744 million yuan, up 12.35% year on year and 7.29% month on month; realized net profit of 76 million yuan, down 2.83% year on year, up 57.59% month on month; weighted average return on net assets was 3.44%, down 0.32 percentage points year on year and up 1.23 percentage points month on month. The gross profit margin on sales was 22.28%, down 2.48 percentage points year on year, up 2.74 percentage points from month to month; net sales margin was 11.89%, down 0.91 percentage points year on year, and up 3.69 percentage points from month to month.
reviews
The decline in aliphatic amine profits put pressure on the 2023 results. The lithium resources business gradually strengthened the company's operating income in 2023 to achieve 2,597 billion yuan, a year-on-year decrease of 3.23%; net profit to mother was 253 million yuan, a decrease of 23.27% over the previous year. The company's revenue and performance declined, mainly due to the decline in the aliphatic amine business sector due to weak downstream market demand and the shutdown of equipment upgrades, and the profit level. By sector, fatty amines achieved revenue of 1,232 billion yuan, -13.97% year-on-year, sales reached 101,000 tons, -5.85% year-on-year, gross margin reached 16.56%, a year-on-year decrease of 4.21 percentage points; organic solvents achieved revenue of 487 million yuan, +11.78% year-on-year, sales reached 612,000 tons, +21.37% year-on-year, gross margin reached 30.55%, an increase of 5.05 percentage points; synthetic fragrances achieved revenue of 519 million yuan, -0.59% year-on-year, and sales reached 14,800 tons, +2.34 million tons %, gross margin reached 20.58%, a year-on-year decrease of 3.57 percentage points. At the same time, in the field of new energy, the company relied on self-developed extractants and new extraction methods to continue to gain strength in the salt lake lithium extraction and lithium recycling business sectors, becoming the company's fastest growing business segment during the reporting period. In 2023, the subsidiary New Lithium wants to achieve a net profit of 365.365 million yuan. In terms of period expenses, the company's sales/management (including R&D) /finance expenses in 2023 were 5.42%/8.92%/0.48%, respectively, compared to +0.62/+0.84/+0.84 pct. The increase in financial expenses was mainly due to an increase in interest expenses on convertible bonds in the current period and a decrease in exchange earnings
2024Q1's performance improved markedly month-on-month. The widening isopropyl alcohol price spread drove the second-quarter results up the company's net profit of 76 million yuan in the first quarter of 2024, down 2.83% year on year and up 57.59% month on month. The month-on-month improvement was significant. It mainly benefited from sales of products such as fatty amines, fragrances, etc., and the increase in the company's overall gross margin level. Among them, 2024Q1 sold 30,800 tons of fatty amines, +13.35% month-on-month, and 0.54 million tons of spices, +11.79% month-on-month; the company's gross margin reached 22.28%, an increase of 2.74 percentage points over the previous month. Since April, the raw material acetone has risen, driving a wide increase in the price of isopropyl alcohol, from 8,250 yuan/ton on April 7 to 9,200 yuan/ton on April 30. The company has 50,000 tons of propylene devices, which can effectively avoid rising acetone prices and fully benefit from rising isopropyl alcohol prices. According to Baichuan Yingfu, profit per ton of propylene rose from 2,050 yuan on April 7 to 3008 yuan on April 30. At the same time, there are still maintenance plans for some isopropyl alcohol plants, and there are still favorable supply expectations. The continued widening of the price spread of propylene isopropyl alcohol will effectively drive the upward performance in the second quarter.
Multiple sectors continue to make efforts to effectively promote the company's medium- to long-term growth
In recent years, the company has continued to promote the upgrading of traditional industries and incubate and cultivate new projects. In the fatty amine sector, the Ocean Pilot Plant project successfully operated and completed trial production of several specialty amine products to provide experimental data support for the next implementation of the specialty amine project; in the organic solvent sector, Jiangsu Xinhua and Xingfu Electronics reached a joint venture agreement for the electronic grade isopropanol project, and the company's isopropyl alcohol products expanded into the electronic grade high-end field, improving the profitability and market competitiveness of the products; in the fragrance sector, Jiangsu Xinrui Phase III project completed the EIA approval. The first phase of the Ningxia Spice project completed the established tasks and was gradually put into operation during the reporting period. At the same time, in terms of lithium resources, the company's lithium extraction project was gradually implemented, and the industrial lithium extraction test project signed with Salt Lake Co., Ltd. and Lanke Lithium was successfully put into operation in July 2023; in the field of lithium battery recycling, the company cooperated with Jiangsu Yaoning New Energy Co., Ltd. to build a phase 1 10,000 tons/year waste lithium recycling production line, and successfully applied the extractant to the Grimmie battery recycling production line. The continued strength of all sectors of the company will effectively enhance the overall competitiveness and promote the company's medium- to long-term growth.
Profit forecasting and valuation
The company's main business is developing steadily, and the synthetic fragrance and lithium resources business are expected to drive the company to start new growth. The company's net profit for 2024-2026 is estimated to be 3.69, 508, and 602 million yuan, EPS is 1.99, 2.74, and 3.25 yuan, respectively. The current price corresponds to PE of 13.71, 9.96, and 8.40, maintaining a “buy” rating.
Risk warning
The release of new production capacity falls short of expectations, the promotion of lithium resource business falls short of expectations, the risk of fluctuations in raw material prices, and the risks caused by increased environmental standards.