Incident 1: On April 19, 2024, Wanrun Co., Ltd. released its 2023 annual report. The company's revenue in 2023 was 4.305 billion yuan, down 15.26% year on year; net profit to mother was 763 million yuan, up 5.78% year on year; net profit after deducting non-net profit was 718 million yuan, up 0.50% year on year. The corresponding company's 4Q23 revenue was 1.130 billion yuan, up 2.51% month-on-month; net profit to mother was 188 million yuan, up 0.77% month-on-month.
On April 19, 2024, Wanrun Co., Ltd. released its 2024 quarterly report. The company's 1Q24 revenue was 938 million yuan, down 9.19% year on year and 16.98% month on month; net profit to mother was 98 million yuan, down 44.32% year on year and 47.58% month on month.
Comment: Demand for antigen test kits has shrunk, and the company's revenue declined in 2023. The company's revenue in the functional materials/life science and pharmaceutical products segment in 2023 was RMB 3.36/882 million, YoY was +12.25/ -56.67%, respectively, and gross margin was 43.91%/36.22%, respectively, with a year-on-year change of 0.99/1.10pcts. In 2023, the company's sales volume in the functional materials segment was 7,846 tons, up 26.96% year on year; sales volume in the life science and pharmaceutical products segment was 295 tons, up 76.65% year on year. Affected by the decline in demand for antigen test kit products, the subsidiary MP's operating income and profit indicators declined, which in turn dragged down the company's overall revenue. In terms of profit, the rapid increase in revenue in the functional materials sector has led to an increase in the company's overall profit level, and the company's net profit to mother has reached a record high. The company's sales expenses in 2023 decreased by 22.87% year on year, the sales expense rate was 3.10%, down 0.30 pcts year on year; financial expenses increased by 82.93% year on year, mainly due to exchange rate changes. The financial expenses ratio was -0.27%, up 1.07pcts year on year; management expenses decreased 12.10% year on year, and the management fee rate was 8.41%, up 0.30 pcts year on year; R&D expenses increased 2.01% year on year. The R&D expenses rate was 8.47%, up 1.43 pcts year on year.
Affected by shrinking downstream demand for some products, 1Q24's performance was briefly under pressure. The company's revenue for Zeolite series environmentally friendly materials declined due to customer inventory removal from downstream Zeolite customers. In order to mitigate the impact of storage removal, the company is currently actively communicating with downstream customers, while also actively exploring the market for adsorption and catalytic zeolite molecular sieve products to create new revenue growth points. In addition, the contraction in demand for some customer-specific pharmaceutical intermediate products that were phased in during the same period last year also had an impact on the company's revenue.
The net cash flow from the company's fund-raising activities fluctuates greatly. The net cash flow from the company's operating activities in 2023 was $1,084 million, up 10.24% year on year; net cash flow from investment activities was -1.703 billion yuan, down 85.14% year on year; net cash flow from financing activities was 350 million yuan, up 397.48% year on year; and the balance of cash and equivalent at the end of the period was 725 million yuan, down 25.61% year on year.
Accounts receivable increased 31.57% year over year, and the accounts receivable turnover decreased from 12.09 times to 8.16 times; inventory fell 0.52% year over year, and inventory turnover decreased, from 1.76 times to 1.26 times.
The company is deeply tied to leading companies in the automotive exhaust catalyst industry, and the competitive advantage of zeolite environmentally friendly materials is obvious.
The global automotive exhaust purification catalyst market shows an oligopoly market pattern. According to the company's 2023 annual report, Zhuangxin Wanfeng, the world's leading manufacturer of automobile exhaust purification catalysts, accounts for more than 50% of the market share in the diesel vehicle exhaust treatment field, and the company has established a stable cooperative relationship with Zhuangxin Wanfeng. In the long run, as automobile emission standards become more strict, the market demand for zeolite environmentally friendly materials is expected to continue to rise. In addition, the company is actively promoting the development and marketing of zeolite molecular sieves in new fields such as adsorption and catalysis. Zeolite molecular sieves for VOCs in the adsorption field have been sold as pilot products, and a production capacity of 300 tons of zeolite molecular sieves is under construction. We are optimistic about the application prospects of the company's zeolite molecular sieve products and stable cooperation between the company and leading companies in the industry. The product market competitiveness is outstanding.
In the field of electronic information materials, the company has achieved a diversified layout. The company mainly produces liquid crystal materials and OLED materials, and also actively lays out products such as polyimide materials and semiconductor manufacturing materials. In terms of OLED finished materials, the subsidiary March Technology has now verified and supplied several OLED finished materials with independent intellectual property rights, and launched the “Comprehensive Technology R&D Center and High-end Production Base Project for New Optoelectronic Materials” in 2023, with an overall investment of 540 million yuan; in terms of pre-OLED sublimation materials, the subsidiary Jiumu Chemical launched and actively promoted the “Jiumu Chemical Production Base A04 Project” in 2023, and plans to invest 145 million yuan to increase the production capacity of OLED pre-sublimation materials. In terms of semiconductor materials, the company's “Photoresist Resin Series Product Project with an annual output of 65 tons” has been put into operation. In terms of polyimide (PI) materials, thermoplastic PI materials have achieved continuous supply of pilot products, and mass production line construction is also being actively promoted. According to the company's investor exchange minutes of April 21, 2024, the company's thermoplastic PI materials were successfully selected into the “Central Enterprise Science and Technology Innovation Achievements Product Manual (2023 Edition)”. In addition, the company has begun research and development of PEEK and has now produced laboratory samples, which is expected to contribute to the company's performance. We are optimistic about the company's diversified layout in the field of electronic information materials. Various high-value-added products such as OLED materials, PI, PEEK, and photoresist resins are expected to contribute to the company's future performance.
In the field of new energy materials, the company is actively expanding its product matrix. According to the company's investor exchange minutes of April 21, 2024, the company has successfully developed optical film materials for solar cell module packaging and is currently in the certification stage. Furthermore, the subsidiary Kyumu Chemical continues to promote the development of fluorine-free proton membrane materials for fuel cells, and pilot products are already being sold downstream. We are optimistic about the company's continued development in the field of new energy materials. This will bring the company more room for development in the field of membrane materials, and also confirm the company's outstanding new material research and development capabilities.
In the life science and pharmaceutical industry, the company actively overcomes adverse effects to achieve steady operation. According to the company's investor exchange minutes of April 21 and April 22, 2024, although the decline in demand for antigen kits had a certain impact on the company's revenue, the commissioning of the “Wanrun Industrial Park Phase 1 B02 Project” and the “Pharmaceutical Formulation Workshop 2 Project” contributed to the increase in pharmaceutical product revenue. Excluding MP Life Science and in vitro diagnostic business, pharmaceutical product revenue increased by more than 60% over 2022. 1Q24 Although customer demand for customized pharmaceutical intermediates has shrunk, the API and pharmaceutical formulation business is relatively stable.
Furthermore, according to the company's 2023 annual report, Wanrun Pharmaceutical's tranexamic acid tablets have obtained a drug registration certificate approved by the State Drug Administration, and the CDMO product R-PZQ ingredient has passed the CHMP (European Commission on Human Medicines) approval under the EMA, and all businesses are developing rapidly. We believe that the company's life science and pharmaceutical sector will be pressured by market environmental factors in the short term. Looking at the stable development of the company's pharmaceutical products businesses in the long run, the overall sector is expected to operate steadily.
Investment advice: We expect Wanrun's revenue for 2024-2026 to be 4,577/52.81/5.891 billion yuan, up 6.31%/15.37%/11.55% year-on-year, and net profit to mother of 685/8.84/986 million yuan respectively, up -10.26%/29.17%/11.50% year-on-year, and corresponding EPS of 0.74/0.95/1.06 yuan respectively. Combined with the company's closing price on May 15, the corresponding PE was 16/12/11 times, respectively. We are based on the following four aspects: 1) We are optimistic about the application prospects of the company's zeolite molecular sieve products and stable cooperation between the company and leading companies in the industry. The product market competitiveness is outstanding. 2) We are optimistic about the company's diversified layout in the field of electronic information materials. Various high-value-added products such as OLED materials, PI, PEEK, and photoresist resins are expected to contribute to the company's future performance. 3) We are optimistic about the company's continued development in the field of new energy materials, which will bring the company more room for development in the field of membrane materials, and also confirm the company's outstanding new material research and development capabilities. 4) We believe that the company's life science and pharmaceutical sector will be pressured by market environmental factors in the short term. Looking at the stable development of the company's pharmaceutical products businesses in the long run, the overall sector is expected to operate steadily and maintain a “buy” rating.
Risk warning: risk of fluctuations in upstream raw material prices, risk of changes in export tax policies, exchange rate risk, downstream market demand risk