Description of the event

The company released its 2023 annual report. The cumulative revenue for the full year of 2023 was 537 million yuan, down 24.73% year on year; net profit to mother was 23.920 million yuan, down 80.10% year on year; net cash flow from operating activities was 43.54 million yuan, down 70.26% year on year. Among them, revenue for the fourth quarter of 2023 was 123 million yuan, a year-on-year increase of 9.13%; net profit to mother was 2,511 million yuan, a year-on-year decrease of 84.15%. The company released its report for the first quarter of 2024. In the first quarter of 2024, it achieved operating income of 103 million yuan, a year-on-year decrease of 28.13%; net profit to mother was 11.91 million yuan, a year-on-year decrease of 81.01%; and net cash flow from operating activities was 1.088 million yuan, an increase of 107.42% over the previous year.

Incident comments

The company focuses on R&D and production of new materials. The company's main business is polyether amines, optical grade polymer materials, and high light transmission materials, which are mainly used in wind power blades, shale gas extraction, automotive coatings, optical lenses, etc. Among them, polyether amine production ranks among the highest in the industry. The company has always focused on developing and producing various new chemical material products. Through continuous independent innovation, with perfect chemical infrastructure, self-developed patented technology, and rich production process control experience, the company has become a leading domestic technology-based enterprise for large-scale production of polyether amines, isobornyl (methyl) acrylate, and alicyclic acrylates. In addition, the company actively lays out and develops cyclic olefin copolymers (COC/COP), which is expected to fill the gap in the domestic market for high transmittance materials.

COC is a highly translucent material with excellent optical properties. Its preparation technology barriers are high, and domestic production is at a standstill. Due to the special results of COC, monomers, catalysts, and polymerization technology all have high technical barriers. Leading international companies such as Rayon, Polyplastics, and Mitsui Chemicals have formed a complete industrial chain from cyclic olefin monomers to polymer synthesis, and occupy most of the production capacity. Currently, industrial production in China's COC/COP industry has been idle for a long time, all dependent on imports, and the future market space is broad. The company has the highest design capacity and is the first to complete laboratory-level synthesis and verification. All indicators have met expectations, and it is expected to become the first listed company in China to mass-produce COC/COP. Take the company's COC main target product as an example. The sales price of Japanese manufacturers is basically between 120,000 to 160,000 yuan/ton, while the company expects the market sales price to be around 80,000 yuan/ton, which is highly competitive compared to the pricing of Japanese manufacturers. The relatively low price is conducive to changing the situation where COC/COP product prices remain high, and can greatly broaden the downstream application fields of products. Localization cost reduction is expected to open up more room for new demand and increase consumer demand for COC/COP. Furthermore, after the project is put into operation, the price of the company's products is lower than the price of existing products, which can help the company quickly form domestic substitutions for its products and increase the market share of the company's products.

COC is about to be put into operation, and the company has plenty of room for future growth. The company will promote and implement COC production in 2023, and advance preparations for trial production of the kiloton COC production line according to the actual situation, and aim to achieve mass production of the kiloton production line by 2024.

As a national high-tech enterprise that is deeply involved in new materials in China, considering that the COC project will be put into operation in 2024 without considering future changes in share capital, the company's net profit from 2024 to 2026 is expected to be 110 million yuan, 320 million yuan, and 490 million yuan. Corresponding to the closing price of PE on May 15, 2024, it is 34.5X, 11.4X, and 7.6X, maintaining a “buy” rating.

Risk warning

1. The production capacity of polyether amines increased dramatically, and demand fell short of expectations; 2. The progress of new projects fell short of expectations; 3. The risk of falling prices after the production capacity of optical materials fund-raising projects was put into production.