Incident 1: On April 29, 2024, Jin Jin Technology released its 2023 annual report. The company's revenue for 2023 was 47.941 billion yuan, up 18.63% year on year; net profit to mother was 317 million yuan, down 84.10% year on year; after deducting non-net profit of 198 million yuan, down 85.20% year on year.
Incident 2: On April 29, 2023, Jin Jin Technology released its report for the first quarter of 2024. The company's 1Q24 revenue was 10.510 billion yuan, up 8.54% year on year, down 23.00% month on month; net profit to mother was 104 million yuan, down 65.33% year on year, up 161.77% month on month.
Comment: The company's performance in 2023 was under pressure, and 1Q24 performance improved month-on-month. The company's overall gross sales margin in 2023 was 12.00%, down 3.2 pcts from the same period last year. In 2023, the company's management expenses increased 20.70% year on year; sales expenses rose 50.33% year on year, mainly due to the company's new products and new market development, business expenses and sales staff performance rewards increased compared to 2022; R&D expenses increased 35.72% year on year, mainly due to the company's new R&D projects, technical process transformation, personnel costs and material investment. The company's net interest rate in 2023 was 0.14%, down 4.81 pcts from the same period last year. The pressure on the company's performance in 2023 is mainly due to the fact that the chemical industry is at the bottom of the cycle, and the overall operating rate of the company's green petrochemical sector falls short of expectations, while raw material costs and operating costs are high; in addition, the company's gross profit for healthcare products declined year-on-year. The company prepared 423 million yuan for asset impairment in 2023, which also had a certain impact on the company's profits. The company's gross margin declined year-on-year in the first quarter of 2024, mainly because the overall operating rate of production equipment in the green petrochemical business fell short of expectations, but 1Q24 still achieved a month-on-month profit. We believe that with the increase in the operating rate of the company's petrochemical sector and the strengthening of integration and collaboration between the green petrochemical and modified plastics sectors, the company's performance is expected to gradually recover.
The company's net cash flow from operating activities declined year over year in 2023. The net cash flow from the company's operating activities in 2023 was 2,406 billion yuan, down 29.88% year on year; net cash flow from investment activities was -4439 billion yuan, up 35.05% year on year, mainly due to the decrease in the company's equipment investment in 2023 compared to last year; net cash flow from financing activities was 1,476 billion yuan, down 54.59% year on year, mainly due to the steady operating cash flow of the company in 2023, and the increase in repaid special financing loans compared to 2022. Cash and cash equivalents at the end of the period were $3.22 billion, a year-on-year decrease of 15.37%. Accounts receivable amounted to $7.319 billion, up 38.03% year over year, and accounts receivable turnover increased from 7.57 times in the same period in 2022 to 7.60 times. Inventory turnover increased from 6.40 times in the same period in 2022 to 7.28 times.
The efficiency of the petrochemical industry has declined across the board, and the green petrochemical sector is under pressure in the short term. Affected by geopolitical turmoil, the acceleration of industrial chain and supply chain restructuring, and the overall decline in the efficiency of the petrochemical industry due to the imbalance between supply and demand, the company's green petrochemical sector still has serious losses despite significant increases in production and sales. In 2023, the company's revenue for green petrochemical products was 9.351 billion yuan, up 147.34% year on year. The gross margin was -12.44%, and it is still in a state of loss. In terms of product prices, the average market price of major products in the green petrochemical sector fell slightly year-on-year in 2023, and 1Q24 prices also fell month-on-month. According to ifind data, the spot prices of polypropylene and ABS in 2023 were -8.88% and -15.16%, respectively, while the spot prices of polypropylene and ABS in 1Q24 were -4.16% and -2.65%, respectively. In terms of sales, according to the company's 2023 annual report, the company produced 1.494 million tons of green petrochemical products in 2023, up 163.84% year on year; sales volume was 1.384 million tons, up 155.35% year on year. The company's production plant for products in the green petrochemical sector was completed and put into operation. The overall operating rate fell short of expectations and the operating costs were high, which is also one of the reasons why the green petrochemical sector is under pressure. We believe that the volume and price of the company's green petrochemical products will rise and fall in 2023, which will drag down the company's overall performance, but the integration of the industrial chain is expected to be completed in the future, and the gradual recovery of domestic and foreign demand may drive the expansion of demand space for green petrochemical products, and price restoration, which is expected to reduce losses and increase efficiency.
The two industrial chains of PP and ABS are developing collaboratively. The company actively promotes upstream and downstream integration and collaboration between the green petrochemical and modified plastics sectors, strengthens “propane-propylene-polypropylene resin-modified polypropylene” and “propane-propylene-acrylonitrile-ABS resin-modified ABS” industry chain collaboration, optimizes product structures, and enhances synergy benefits. Ningbo Jinhua has a PDH unit with an annual output of 1.2 million tons and a polypropylene plant with an annual output of 800,000 tons, forming a complete industrial chain. It has become an important enterprise in the domestic carbon 3 industry chain. It continues to develop differentiated products such as homogenized, copolymerized, and impact-resistant polypropylene, and actively develops differentiated products with fine adjustment and slight modification of the polymerization end according to market demand. As the largest ABS manufacturer in Northeast China, Liaoning Jinhua has an annual output of 600,000 tons of ABS devices, 600,000 tons of PDH devices, 260,000 tons of acrylonitrile units, and 100,000 tons of MMA devices. Relying on the advantages of modified plastics sector technology, marketing and supply chain platforms on ABS, it actively increases the production and sales ratio of special materials and increases product profitability according to market demand in downstream application segments.
Sales of modified plastics reached a record high, and production in the new materials sector grew rapidly. According to the company's 2023 annual report, the modified plastics sector ranked first in production and sales volume in the industry, leading the world in terms of production scale. The company's modified plastics segment revenue was 26.966 billion yuan, up 5.14% year on year, gross margin was 23.51%, up 2.26 pcts year on year; modified plastic product output was 2.1508 million tons, up 19.65% year on year, sales volume was 2.1125 million tons, up 19.88% year on year, and sales volume reached a record high. In the new materials sector, the company's revenue for new material products in 2023 was 3.157 billion yuan, 8.77% year on year, gross margin was 17.24%, a year-on-year decrease of 1.06 pcts; in 2023, the new materials sector achieved production volume of 284,600 tons, an increase of 63.75% year on year, sales volume of 1781,000 tons, and a year-on-year increase of 45.03%. The new materials sector company's product application fields continue to expand, the production capacity layout has achieved outstanding results, and its position in the industry has been further consolidated.
Modified plastics are expected to continue to gain strength and improve the global layout. Continuing the views in our previous “Waiting for the Industry Cycle Recovery, Optimizing the Long-term Layout of the Company's Modified Plastics Business” report, we believe that with economic development, the global modified plastics market is expected to continue to expand. On the other hand, modified plastics are expected to maintain a high growth rate in downstream fields such as automotive materials and new energy. Furthermore, considering that the company is the world's largest modified plastics manufacturer with the most complete range of products, and concentrated production capacity investment after the expansion of the chemical industry, the market supply exceeds demand, and the price of chemical products is generally declining, which is beneficial to the company's modified plastics sector, the company is expected to gradually release the amount of modified plastics , driving the company's profit upward.
Investment advice: The company is expected to achieve operating income of 507.08/573.62/63.209 billion yuan in 2024-2026, respectively, and realized net profit of 8.64/20.53/2,589 billion yuan respectively, corresponding EPS of 0.32/0.77/0.97 yuan, respectively. The PE multiples corresponding to the current stock price are 23.2X, 9.7X, and 7.7X, respectively. We are based on the following aspects: 1) the company's sales volume in the modified plastics sector continues to grow, production and sales volume is stable, market demand is expanding, and long-term profitability is improving; 2) the capacity layout of the new materials sector has achieved remarkable results and the market share continues to increase; 3) After the integration of the PP and ABS industry chains, it is expected to improve the profitability of the company's petrochemical sector and achieve loss reduction and efficiency. We are optimistic about the company's continued growth in the modified plastics and new materials sector and the company's size advantage to maintain a “buy” rating.
Risk warning: macroeconomic risks; raw materials and supply risks; environmental protection and production safety risks; exchange rate risks; digital construction risks, etc.