Incident 1: On April 25, 2024, Xinhua Co., Ltd. released its 2023 annual report. The company's revenue for 2023 was 2,597 billion yuan, down 3.23% year on year; net profit to mother was 253 million yuan, down 23.27% year on year, after deducting non-net profit of 240 million yuan, down 21.59% year on year.
Incident 2: On April 25, 2024, Xinhua Co., Ltd. released its report for the first quarter of 2024. The 1Q24 company's revenue was 744 million yuan, up 12.35% year on year, up 7.29% month on month; net profit to mother was 76 million yuan, down 2.83% year on year, up 57.59% month on month.
Comment: The company's performance in 2023 was under pressure, and the prices of some main products fell. The company's overall gross sales margin in 2023 was 23.26%, down 0.31pcts from the same period last year. In 2023, the company's financial expenses rose 228.36% year on year, mainly due to an increase in interest expenses on convertible bonds and a decrease in exchange income; sales expenses rose 11.53% year over year, mainly due to increased payment of REACH certification fees; management expenses rose 9.19% year on year, mainly due to increased remuneration expenses for subsidiary management personnel and transportation and office expenses; and R&D expenses increased 3.59% year on year. The company's net interest rate in 2023 was 11.12%, down 2.65 pcts from the same period last year, and the 1Q24 net profit margin was 11.89%, down 0.91 pcts from the same period last year. The year-on-year decline in the company's performance in 2023 is mainly due to a drop in sales prices of aliphatic amines and organic solvent products. The company's profit declined slightly year-on-year in the first quarter of 2024, with a significant month-on-month improvement.
The company's net cash flow from operating activities fell year-on-year in 2023. The net cash flow from the company's operating activities in 2023 was 281 million yuan, down 12.85% year on year, mainly due to an increase in cash from purchasing goods and receiving labor payments; net cash flow from investment activities was -207 million yuan, up 62.49% year on year, mainly due to a decrease in cash payments for the purchase and construction of fixed assets, intangible assets and other long-term assets and due redemption of bank wealth management products; net cash flow from financing activities was -0.27 billion yuan, down 105.5% year on year, mainly due to a decrease in cash received from loans To you. The balance of cash and cash equivalents at the end of the period was $730 million, up 7.50% year over year. Accounts receivable increased 13.86% year over year, and the accounts receivable ratio turnover fell from 11.30 times in 2022 to 9.90 times. Inventory turnover declined from 6.62 times in 2022 to 6.51 times.
The company's aliphatic amines and synthetic fragrance sectors declined due to prices, and businesses such as lithium extraction and lithium recycling in salt lakes grew rapidly. According to the company's 2023 annual report, the company's revenue in the aliphatic amine sector in 2023 was 1,232 million yuan, down 13.97% year on year, gross margin was 16.56%, down 4.21pcts year on year; organic solvent sector revenue was 487 million yuan, up 11.78% year on year, gross profit margin was 30.55%, up 5.05 pcts year on year; synthetic fragrance segment revenue was 519 million yuan, down 0.59% year on year, gross margin was 20.58%, down 3.57 pcts year on year. In terms of product production and sales, in 2023, the company will produce 101,200 tons of fatty amines, 60,600 tons of organic solvents, and 151,000 tons of synthetic fragrances. Affected by weak downstream market demand and the shutdown of equipment upgrades, sales of fatty amine products decreased by 5.85% compared to the previous year, while sales in the organic solvents and synthetic fragrance sectors both increased by 21.37% and 2.34%, respectively.
The company's performance in 2023 was affected by adverse factors such as falling market demand and falling sales prices, but business sectors such as lithium extraction and lithium recycling in Salt Lake had a relatively rapid growth rate, hedging the impact of poor product demand and falling prices to a certain extent.
A number of new construction projects are progressing steadily, and the 20,000 tons of electronic-grade hydrogen peroxide and 8,000 tons of electronic-grade ammonia projects were terminated early. In 2023, the company comprehensively promoted the upgrading of production facilities and the construction of intelligent digital factories, the construction of 100,000 tons of organic amine plants and tanks, the upgrading of the TMDD operation room, and the steady progress of the Jiangsu T-206 tower replacement, high-alcohol IPA transformation, and the optimization of the APC advanced control system. In addition, the Ocean Pilot Plant project successfully launched and completed trial production of various specialty amine products, providing key experimental data for the implementation of the specialty amine project; the company signed a joint venture agreement with Xingfu Electronics to expand isopropyl alcohol products to the electronic grade high-end market; the Jiangsu Xinrui Phase III project completed EIA approval, and the Ningxia Fragrance Phase I project was gradually put into operation according to the plan to expand production capacity.
In the field of lithium battery recycling, the company cooperated with Jiangsu Yaoning New Energy Co., Ltd. to build a recycling production line that processes 10,000 tons of waste lithium batteries per year, and successfully applied extractant technology to the recycling process of Grimmie batteries. At the same time, an extractive lithium precipitated lithium mother liquid industrialization test project with Salt Lake Co., Ltd. and Lanke Lithium was successfully put into operation in July 2023. However, due to various uncertainties, the project to produce 20,000 tons of electronic-grade hydrogen peroxide and 8,000 tons of electronic-grade ammonia per year was terminated prematurely in April 2023.
Investment advice: The company is expected to achieve operating income of 31.16/36.76/4.207 billion yuan respectively in 2024-2026, and realized net profit of 3.55/ 4.71/559 million yuan respectively, corresponding EPS of 1.91/2.54/3.01 yuan, respectively. The PE multiples corresponding to the current stock price are 14.0, 10.6, and 8.9, respectively. Based on the following aspects, 1) the company's salt lake lithium extraction, lithium recycling and other sectors are improving; 2) the gradual release of production capacity in the Ningxia synthetic fragrance project, lithium battery recycling, and salt lake lithium extraction projects is expected to broaden the company's incremental space. We are optimistic about the company's future growth and maintain a “buy” rating.
Risk warning: Risk of fluctuations in raw materials and energy prices; environmental compliance risks; risks such as overseas sales risks, and the progress of projects under construction falling short of expectations.