Description of the event
The company released an annual report and a quarterly report: In 2023, the company achieved revenue of about 3.7 billion yuan, an increase of 2% over the previous year, and net profit of about 30 million yuan, turning a loss into a profit. In the first quarter of 2024, the company achieved revenue of about 920 million yuan, a year-on-year increase of 24%, and attributable net profit of about 0.2 billion yuan, an increase of 74% over the previous year.
Incident comments
Profits in the carbon fiber sector are under pressure. In 2023, against the backdrop of weakening demand and large supply investment, the price of carbon fiber dropped sharply. According to Baichuan, the tax-inclusive price of large wire bundle carbon fiber dropped from about 130 yuan/kg in early 2023 to about 75 yuan/kg at the end of the year. The average price including tax for the whole year was about 95 yuan/kg, a decrease of 32% over the previous year. The company built a new carbonization production line in early 2023 and gradually started operation. The annual carbon fiber output was 8,740 tons, but the market pressure was high. The sales volume was only 4,724 tons, and the production and sales rate was 54%. In 2023, it achieved carbon fiber sales revenue of about 370 million yuan, corresponding to the unit price of carbon fiber without tax of about 78 yuan/kg (about 88 yuan/kg including tax). Under this low price, and being dragged down by a low annual production and sales rate, the company lost a large amount of money in the carbon fiber sector last year.
It is concerned that the carbon fiber industry may stabilize during the year. As the price of carbon fiber fell, the vast majority of companies in the industry experienced deep losses, and companies stopped production or slowed down production. According to Baichuan data, as of the end of May 2024, the carbon fiber industry had a production capacity of about 127,000 tons. The current operating rate was about 45%, down about 11 percentage points from the previous year, down 24 percentage points from when the industry was booming in 2022. In terms of industry inventory, the pressure is still high. According to Baichuan data, the current industry inventory is about 16,000 tons, and the number of inventory days exceeds 100 days (refer to the company's annual report data, Zhongfu Condor had an inventory of 3,249 tons at the end of the year, corresponding to about 60 days of inventory; Jilin Chemical Fiber listed companies had an inventory of 4,329 tons at the end of the year, corresponding to about 180 days of inventory). In 2024, we determined that some demand, such as overseas wind power, may have improved, with large domestic and foreign price differences. We observed a return in overseas wind power orders, and domestic sea breezes are expected to increase. Demand is expected to stabilize and be expected. If inventories can be gradually digested, we are concerned about possible future price recovery.
The low-altitude economy may become a future growth point for carbon fiber, and the company lays out ahead and fully benefits. Jilin Chemical Fiber Group signed a strategic cooperation agreement with China Hengrui HRC in 2022. China Hengrui HRC is currently the most important supplier of carbon fiber components for mainstream flying vehicles. Recently, Jilin Chemical Fiber Group and Shanghai Aircraft Manufacturing Co., Ltd. signed a cooperation agreement on the development and application of composite materials for civil aviation. The low-altitude economy is expected to drive demand of more than 10,000 tons in the long term, and the company is expected to fully benefit.
The company's original main business, viscose filament, has entered an upward boom cycle. The company's revenue for viscose filament increased 4% year on year in 2023, and gross margin increased significantly by 8 percentage points to 22%. Viscose filament revenue accounted for about 72% of overall revenue. The increase in profit largely hedged losses in the carbon fiber business. In the end, the company's overall gross margin was about 13% in 2023, up 4.6 percentage points year on year, and the performance turned loss into profit. The viscose filament boom gradually recovered in 2023, mainly due to the Russian-Ukrainian war, where chemical fiber plants in Europe and Bulgaria cut production, while global demand continued to recover. In particular, the Indian market grew rapidly. Since the first quarter of 2024, with the popularity of national clothing such as horse masks, demand for viscose filaments has increased significantly, and supply and demand have tightened. The market price has risen from 42,000 yuan/ton at the end of 2023 to 45,500 yuan/ton at the end of May. The company's overall gross margin in the first quarter has increased to 16% and is expected to continue to rise. The company's product advantages are remarkable. The production capacity ranks second in China. Equipment installation has already begun with an additional 10,000 tons of viscose filament production capacity. After production is put into operation, the production capacity will reach 90,000 tons, and the market share will reach 30%, which will fully benefit from this upward cycle.
The company's net profit for 2024-2025 is estimated to be 170 to 270 million yuan, corresponding to 54 to 35 times the valuation.
Risk warning
1. The progress of the carbon fiber business falls short of expectations;
2. Prices of raw materials fluctuate greatly.