24Q1 achieved revenue of 712 million yuan, an increase of 21.1% year over year. Revenue growth is due to continued growth in downstream market demand for cosmetic active ingredients and their raw materials business and the gradual expansion of the company's new product lines. 24Q1 achieved deduction of non-net profit of 204 million yuan, an increase of 29.78% over the previous year. In addition, the government subsidy for the first quarter was 15.51 million yuan. The gross margin declined slightly year over year, and the expense ratio declined. The gross profit margin for the first quarter was 47.82%, down 1.2 percentage points year on year, and the net profit margin was 30.85%, up 3.6 percentage points year on year.

Revenue of 2.4 billion yuan was achieved in 2023, up 35.99% year over year. This is mainly due to the continuous increase in demand in the downstream market for cosmetic active ingredients and their raw materials business, the steady increase in the company's market position, and the further release of products represented by novel sunscreen agents. Non-net profit in 2023 was 715 million yuan, up 89.11% year-on-year. The annual gross profit margin was 48.83%, up 12.17 percentage points from the previous year, and the net profit margin was 30.57%, up 8.58 percentage points from the previous year. The rapid release of production capacity for some of the company's new products and the increase in capacity utilization helped improve the overall gross margin level.

Sales of major products have been growing steadily, and new categories of emollients and moisturizer processes have been opened. The company achieved sales volume of 19,500 tons of cosmetic active ingredients and their raw materials in 2023, up 17.52% year on year, average price up 22.27% year on year, and the average price was stable in 2023; sales volume of synthetic fragrances was 0.72 million tons, up 21.71% year on year, and average price fell 12.23% year on year. The average price declined in 2023 due to increased market competition. In addition, the company has increased the categories of raw materials for personal care products. The main process routes for high-end emollients and high-efficiency moisturizers have been completed, and some aspects are being optimized.

New projects are progressing in an orderly manner, and construction of the Malaysian plant is being accelerated. In 2023, the company successfully completed the construction and trial production of part of the Maanshan COSCO sunscreen product expansion project with an annual output of 5,000 tons. The production capacity scale of avobenzone (AVB), diethylaminobenzoyl hexyl benzoate (PA), and ethylhexyltriazinone (EHT) will be further increased. At the same time, the first batch of 12,800 tons/year amino acid surfactant and 3,000 tons/year of the novel anti-dandruff agent piroxone ethanolamine salt (PO) in Anqing were successively completed and put into production, and the high-end personal care products project with an annual output of 2,600 tons was also basically completed. The company will promote the construction of a series of sunscreen products with an annual output of 10,000 tons in Malaysia in an orderly manner.

Profit forecast. We expect the company's net profit to be 924, 11.70, and 1,423 million yuan respectively in 2024-2026, and the corresponding EPS will be 5.46 yuan, 6.91 yuan, and 8.40 yuan, respectively. Referring to companies in the same industry, we gave the company 18-20 times PE in 2024, corresponding to a reasonable value range of 98.3-109.2 yuan, maintaining a “superior to the market” rating.

Risk warning. Prices of major raw materials fluctuate, exchange rates fluctuate, downstream demand changes, and the competitive landscape deteriorated.