Description of the event
1. The company released its 2023 annual report and achieved annual revenue of 18.01 billion yuan (+3.7% YoY), net profit of 410 million yuan (+8.4% YoY), and non-net profit of 390 million yuan (+8.9% YoY). The company plans to distribute a cash dividend of 3.5 yuan (tax included) for every 10 shares to all shareholders. 2. The company released its 2024 quarterly report, achieving revenue of 520 million yuan (+25.9% YoY), net profit of 120 million yuan (+45.6% YoY), and non-net profit of 120 million yuan (+53.6% YoY).
Incident comments
The company's revenue and performance reached record highs in 2023. In 2023, the company's silica production reached 298,000 tons (+18.6% YoY), sales volume reached 298,000 tons (YoY +19.0%), sales amount reached 1.78 billion yuan (+8.1% YoY), and the calculated price of a single ton was 5980.7 yuan (-9.2% YoY). The company's gross margin for 2023 was 29.4% (+0.9 pct year over year).
The company's annual expense ratio was 4.4% (+1.3 pct year over year). Among them, sales, management, finance and R&D expenses changed by +0.2, -0.2, +1.3, and 0.0 pct, respectively. The increase in financial expenses was mainly due to a decrease in exchange earnings.
2024Q1's quarterly revenue and performance hit record highs. 2024Q1's silica product output reached 86,000 tons (+37.4% year over year, +5.4% month on month); sales volume reached 87,000 tons (+33.5% year on month, +9.8% month on month); sales amount reached 520 million yuan (+26.1% year on month, +7.9% month on month); the price of a single ton reached 5926.5 yuan (-5.5% yoy, -1.8% month-on-month). The company's 24Q1 gross margin was 31.0% (+3.7 pct year over year). Q1 Raw material prices have declined. In 24Q1, the company's purchase price of soda ash decreased 4.8% month-on-month; the purchase price of quartz sand decreased 1.2% month-on-month; and the purchase price of sulfur decreased 1.1% month-on-month.
The reasons for the increase in revenue performance include: 1) strong market demand in the downstream tire industry, especially with the continuous expansion of production capacity of domestic tire companies; 2) the unit price of the company's products declined due to the decline in raw material prices and the adoption of a market-ready price model by some customers, but the unit price of the product fell less than that of raw materials, and profit margins increased; 3) The capacity utilization rate of the company's base in Thailand increased rapidly. The economic efficiency increased significantly, and the advantages of overseas production bases were highlighted. As the company's production capacity continues to be released, downstream demand is improving, and revenue and performance continue to increase.
The company's production capacity is expanding in an orderly manner. In 2020, the first phase of the company's Thailand project was officially put into operation, and the technical improvement capacity of the Sanming plant in Fujian was put into operation one after another. By the end of 2023, the company had a silica production capacity of 330,000 tons/year. The company's second phase of 25,000 tons/year of high-dispersible silica in Thailand has completed preliminary local approval procedures, and construction will commence after obtaining further construction permits, etc.; the various production lines of the fund-raising project 75,000 tons/year high-disperse silica project are expected to be completed one after another in 2024, and all projects are expected to be completed by the end of 2024. In the future, with the gradual release of production capacity, the company's market competitiveness will be enhanced.
Continue to advance in the direction of greening and high-end technology. On the basis of increasing the international market share of highly dispersed silica, the company is accelerating the commercial application of new products in silicone rubber, toothpaste and other industries, improving the utilization rate of dedicated line production capacity, and speeding up the implementation of technological transformation projects using biomass (rice husk) instead of natural gas fuel and using rice husk ash from rice husk combustion as a silicon-based substitute for quartz sand to produce highly dispersed silica. At the same time, the company is actively working to promote commercialized production of the silica microsphere project.
Maintain a “buy” rating. The company is the largest supplier of precipitated silica in Asia and the third largest in the world. The company's industrial chain extends upstream and downstream, and has now built a complete industrial chain from raw materials sulfuric acid and sodium silicate to the final product silica. As the global tire greening rate continues to grow and the company's own production capacity is released, performance is expected to usher in rapid development. The company's net profit for 2024-2026 is estimated to be RMB550 million, RMB620 million and RMB730 million respectively.
Risk warning
1. The investment of new production capacity falls short of expectations;
2. Poor downstream demand;
3. Fluctuations in raw material prices.