Incident 1: On April 28, the company released its 23-year annual report, achieving annual revenue of 950 million yuan, +15.3%; net profit to mother of 0.7 billion yuan, or -43.5% year-on-year; deducted non-net profit of 50 million yuan, or -43.3% year-on-year. 23Q4 revenue was 260 million yuan, +1.3% year over year; net profit to mother was 0.1 billion yuan, -59.1% year over year; net profit after deduction of non-return to mother was 0.1 billion yuan, -58.1% year on year.
Incident 2: The company released its quarterly report for '24. In 24Q1, it achieved revenue of 270 million yuan, +19.0% year over year; net profit to mother of 30 million yuan, +8.2% year over year; net profit after deducting non-return to mother of 0.2 billion yuan, +9.6% year over year.
Incident 3: On April 30, the company announced that the borosilicate molded bottle passed the technical review by the Drug Evaluation Center of the State Drug Administration, and the registration number changed to “A” status, indicating that the company's borosilicate molded bottles can be officially marketed and sold in batches.
Revenue grew steadily in '23, and the 24Q1 growth rate increased sequentially. The company's medicinal glass and heat-resistant glass products achieved revenue of 410 million and 520 million, respectively, +15.3% and +24.9%, respectively. The annual sales volume of medicinal glass and heat-resistant glass products was +19.6% and +25.9%. The lower revenue growth rate was mainly due to a slight decline in the unit price of the product. The unit price of the company's medicinal glass and heat-resistant glass was -3.6% and -0.8%, respectively. We expect the decline in the unit price of medicinal glass to be relatively obvious, mainly affected by increased competition in the regulated bottle business. On a quarterly basis, the year-on-year growth rates of the company's 23Q1-24Q1 revenue were +19.0%, +27.1%, +18.4%, +1.3%, and +19.0%, respectively. We expect the company's 23Q4 revenue growth rate to slow down or be affected by the high base in the previous period, and the 24Q1 revenue growth rate will pick up mainly due to stable product prices and sales growth.
After 23 years of high costs and pressure on performance, gross margin improved in 24Q1. In '23, the company's medicinal glass and heat-resistant glass products achieved gross profit margins of 23.2% and 13.1%, respectively, compared to -1.6 pcts and -6.9 pcts, respectively. We expect that on the one hand, due to the upgrading volume of borosilicate products, and on the other hand, due to a decrease in raw glass tube costs; the gross margin of heat-resistant glass declined more than the unit price. We expect that the main reason is that the raw materials borax and boric acid costs are still high. On a quarterly basis, the gross margins of 23Q1-24Q4 companies in a single quarter were 19.7%, 14.2%, 18.2%, and 17.8%, respectively, and profit levels have bottomed out since Q3. The company's expense ratio for the 23-year period was 10.8%, +2.6 pcts year on year, of which the financial expense ratio was 0.5% and +1.5pcts year over year, mainly affected by interest expenses on debt conversion; the net interest rate for the whole year was 7.0%, -7.2 pcts year on year. Entering 24Q1, the prices of borax and boric acid began to stabilize and fall. The profit level of the company's heat-resistant glass business is expected to recover, achieving a comprehensive gross profit margin of 20.7%, +1.0pcts and +2.9pcts, respectively. The profit level has improved. The 24q1 period cost ratio was +1.4 pcts to 10.4% year on year; the net interest rate was 9.3%, -0.9 pcts year on year.
Molded borosilicate bottles are expected to be released smoothly, opening up room for profit growth. Currently, the company has a production capacity of 50,000 tons of molded bottles, and plans to have a production capacity of about 58,000 tons under construction. Due to being deeply involved in the pharmaceutical glass industry for many years, the company has formed close cooperation with many pharmaceutical companies. The key technical indicators of borosilicate molded bottles have all passed the requirements of the national standard, and samples have been sent to many pharmaceutical companies. After switching to “A”, product sales are expected to open up the market from 24Q2, thereby gradually contributing to profit growth.
Investment advice: As a controlled bottle leader, the company is expected to continue to maintain strong competitiveness and achieve horizontal breakthroughs after entering the borosilicate molded bottle circuit; the company's traditional heat-resistant glass business is gradually bottoming out, and profit improvements can be expected. We expect the company to achieve net profit of 1.5/2.2/260 million in 2024-2026 (the original 24-25 forecast was 17/240 million), corresponding to the current stock price PE of 28/19/16 times PE, maintaining a “buy” rating.
Risk warning: Project investment falls short of expectations, demand falls short of expectations, cost fluctuations exceed expectations, and increased competition exceeds expectations.