Incident: On April 17, the company released its 2023 annual report and 2024 quarterly report. The 2023 operating revenue/net profit to mother changed by -25/ -43.65% to 6.16/0.48 billion yuan, respectively, and the 2024 Q1 operating revenue/net profit to mother changed +7.42/ +31.25% to 1.9/022 million yuan respectively; at the same time, it plans to use part of the overraised capital to repurchase 30 million to 40 million yuan of shares to implement equity incentives or employee stock ownership plans. 27.37 million yuan. Comments on this are as follows:

Europe's economic slowdown and cost increases dragged down 2023 results, and net profit due to mother in Q1 2024 achieved a restorative increase. The company's overseas business accounted for 91% of the company's revenue in 2023, with Europe as the main overseas location, and Europe's share of revenue in 2021 was as high as 64%. Due to the slowdown in European economic growth and the increase in sales and management expenses due to market development, product/listing, and overseas acquisitions and factory set-up, the company's 2023 revenue/net profit decreased by 25/ 43.65% year on year, respectively; by product, the company's revenue from high-performance wood-plastic composite/ new stone and wood plastic composite products changed by -38.01/ -5.16% year on year to 290/296 million yuan; in Q1 2024, benefiting from the increase in sales orders, the company's revenue/net profit to mother +7.42/ +31.25% year on year Profitability was further restored at 1.9/022 million yuan, with gross margin/net margin +1.23/ 0.11pct to 27.95/ 9.59%; the company's deducted non-net profit increased 1.9% year over year to $18 million, mainly due to the large market development and sales expenses of the US subsidiary and the large losses of the holding company Knight Hong Kong.

Vigorously expand the US market, release production capacity at the Vietnamese factory+establish a new base in Thailand to help future growth. The largest market for plastic-wood composites is in North America. In June 2023, the company established Knight Holdings and its subsidiary Knight Reserve in the US; in August 2023, the company announced that it plans to purchase 100% of Decking Distribution Sub, LLC's shares. If successfully completed, the company will obtain Fortress's sales channel business and related operating assets in the North American region, which will help the company further develop the North American sales market business. According to the company's prospectus, the company plans to implement a lightweight co-extruded wood-plastic composite material expansion project with an annual output of 20,000 tons and a technical improvement project for a new stone wood-plastic composite digital printing production line with an annual output of 6 million square meters. The increase in production capacity is expected to further drive the company's revenue growth; in April 2023, the company established Sentai Vietnam to manufacture products; in September 2023, the company established Thailand Sentai to establish a product production base, which will help the company establish overseas product service supply capacity to better meet the order needs of overseas customers.

The shares to be repurchased are used for employee stock ownership plans or equity incentives, demonstrating the company's confidence in future development. On April 17, the company announced that it intends to use some of the overraised capital obtained from the initial public offering of RMB common shares to repurchase the company's shares. The repurchase amount is not less than 30 million yuan (inclusive) and no more than 40 million yuan (inclusive), and the repurchase price is no more than 22 yuan/share (inclusive). The repurchase of shares will be used to implement equity incentives or employee stock ownership plans, demonstrating the company's confidence in future development. As of April 30, the company had repurchased 180,000 shares of the company's shares for the first time through centralized bidding transactions, accounting for 0.1523% of the company's total share capital; the total repurchase transaction amount was approximately RMB 2.777 million (excluding transaction fees).

Investment advice: 24Q1 performance and order recovery, overseas base+channel expansion helped growth, and an increase in holdings rating was given for the first time. The company's net profit from 2024 to 2026 is expected to reach 1, 130, and 170 million yuan, respectively, up 105%, 38%, and 23% year-on-year, respectively, corresponding to PE valuations 21, 15, and 12 times. According to GrandView Research statistics, the combined growth rate of the global wood-plastic composites market reached 11.4% in 2019-2027. The company's main competitive advantages include: 1) The company's products are mainly exported and sold well in developed countries such as Europe and the United States, and have gained a certain share of the middle and high-end market in the international market. 2) The company has independent core technology for its main products. Through years of technology accumulation and independent innovation, the company has now formed high-performance wood-plastic composite products with a complete range of categories, continuous upgrading, and excellent performance to meet market needs.

3) Many performance indicators of the company's main products are superior to international standards. As one of the main drafting units, it has participated in drafting or preparing many wood-plastic industry or national standards, promoting the development of the domestic wood-plastic industry. In 2024, the company achieved restorative growth in Q1 net profit, and further vigorously expanded the US market. Production capacity was released at the Vietnamese factory+the establishment of a new base in Thailand to help future growth.

Risk warning: Overseas competition intensifies; overseas political risks; raw material costs rise above expectations; progress of proposed production capacity projects under construction falls short of expectations, etc.; risks such as falling short of expectations, exchange rate and tariff fluctuations in the US market.