Description of the event

Revenue of 947 million yuan was achieved in 2023, up 15.25% year on year; attributable net profit of 66 million yuan, down 43.49% year on year; equivalent to Q4 revenue of 256 million yuan, up 1.29% year on year; and attributable net profit of 12 million yuan, down 59.13% year on year.

2024Q1 achieved revenue of 267 million yuan, an increase of 18.99% year on year; attributable net profit of 25 million, up 8.22% year on year; deducted non-net profit of 202 million yuan, up 9.61% year on year.

Incident comments

Revenue grew steadily, and profits were affected by rising raw materials. The company achieved revenue of 15.25% year-on-year. By business, pharmaceutical glass achieved revenue of 406 million yuan, an increase of 15.27% year on year. Among them, borosilicate pharmaceutical glass bottles achieved sales of 331 million yuan, an increase of 18.47% year on year; heat-resistant glass achieved revenue of 518 million yuan, an increase of 24.86% year on year, with a significant recovery. In terms of profitability, the gross profit margin in 2023 was 17.4%, down 4.7 pcts year on year, mainly affected by rising raw material prices.

Looking at the breakdown, the gross profit margin of medicinal glass was 23.19%, down 1.63 pcts year on year; heat-resistant glass was 13.13%, down 6.86 pcts year on year. During 2023, the rate was 10.8%, an increase of 2.6 pcts over the previous year, with sales and finance rates increasing by 1.0 and 1.5 pcts respectively. In the end, the net interest rate for the full year of 2023 was 7.0%, a year-on-year decrease of 7.2 pcts.

Looking at a single quarter, the 2024Q1 revenue growth rate improved, gross margin increased year-on-year, and an inflection point in profit may have appeared. 2023Q4 revenue also increased 1.3%, and continued to grow month-on-month at a year-on-year growth rate, which may be affected by the base figure. The Q4 gross profit margin was 17.8%, a slight decrease of 0.6 pct from the previous year. The decline narrowed markedly, and considering the price trend of raw materials, the Q2 profit contribution is expected to be more obvious. The rate increased by 6.8 pct to 13.2% during the Q4 period, with sales, management, and finance rates increased by 1.3, 3.4, and 2.3 pcts, respectively. In the end, the net interest rate was 4.8%, up 7.1 pcts. 2024Q1 revenue also increased by 18.99%, a marked improvement over 2023Q4. 2024Q1 achieved a gross profit margin of 20.7%, an increase of 1.0 pct year over year, the first increase in nearly a year; the rate during the 2024Q1 period was 10.4%, an increase of 1.4 pct, of which the financial rate increased by 1.7 pcts, mainly affected by interest on convertible bonds; and finally achieved a net vested interest rate of 9.3%, a decrease of 0.9 pcts year on year.

From regulation to molding, from bottle making to tube drawing. The company first engaged in the sale of low borosilicate pharmaceutical glass, then gradually entered the field of borosilicate and took a leading position in the field of control bottles. Looking forward to the future, borosilicate control bottles among the company's dominant products will continue to expand. Furthermore, the horizontal and vertical expansion of products will also accelerate. On the one hand, it is expected that borosilicate molded bottles will gradually be released in the future, and on the other hand, tube production upstream of control bottles will begin.

The amount of borosilicate is released to help the faucet concentrate. Related approval and implementation of generic drug consistency evaluation policies have led to supply-side reforms in the pharmaceutical industry. Among them, pharmaceutical glass is one of the most widely used pharmaceutical packaging materials. Its industry concentration is expected to increase at an accelerated pace, and the process of replacing neutral pharmaceutical glass with better performance is expected to accelerate. The number of drugs that have passed the evaluation increased rapidly in 2023. A total of 2,713 generic drugs passed the consistency evaluation, involving 742 varieties. Compared with the 1,899 product regulations in 2022, the year-on-year increase was 42.86%. The deepening of the consistency evaluation is driving the rapid increase in the penetration rate of borosilicate in China.

Investment advice: Optimistic about the company's rapid release of borosilicate glass and the steady recovery of daily-use glass. It is estimated that in 2024 and 2025, net profit of 150 to 240 million yuan, corresponding to PE 27 or 17 times, will be given a purchase rating.

Risk warning

1. New product expansion falls short of expectations;

2. Increased market competition.