With new capacity being released in the carbon fiber industry, and the background of supply and demand imbalance and industry competition, Weihai Guangwei Composites' (300699.SZ) capacity expansion is still ongoing.

Weihai Guangwei Composites announced tonight that the 4,000-ton carbon fiber production line for the first phase of the Inner Mongolia Guangwei project has completed all equipment installation, commissioning, and trial production work, and has been officially put into operation, mainly producing carbon fiber products that are both high-performance and low-cost, meeting the needs of the civilian industrial sector.

It is understood that the Inner Mongolia Guangwei Carbon Fiber Industrialization Project has a planned total investment of 2.1 billion yuan and an annual production capacity of 10,000 tons of high-performance carbon fiber. The first phase of the project has a capacity of 4,000 tons, and the second phase has 6,000 tons.

Regarding the subsequent construction of the 6,000-ton project, Weihai Guangwei Composites did not give a clear timetable. The company recently stated in an institutional survey that it will first look at the operation of the first phase, which has completed supporting infrastructure and ancillary engineering, and that the 6,000-ton project mainly involves duplicating the production line.

In fact, the progress of the company's new production capacity construction in Baotou, Inner Mongolia has always been a focus of the market's attention. As early as the first quarter of last year, when the company was surveyed, it stated that the original plan was to make large tow bundles, which was delayed due to the switch to T700S/T800S-level products, as well as T1000-level products.

In recent years, along with the investment and production expansion boom in the carbon fiber industry, the release of production capacity, and the continuous decline in demand, general-purpose carbon fiber has gone from being undersupplied to oversupplied. Among its peers, Zhongfu Shenying (688295.SH), Sinofibers Technology (300777.SZ) and Weihai Guangwei Composites have a relatively high degree of correlation. Referring to the data disclosed in Zhongfu Shenying's annual report, the average unit price of carbon fiber decreased from 211 yuan/kg in 2022 to 124 yuan/kg in 2023.

After experiencing the price cut, Weihai Guangwei Composites' relevant product lines are also facing pressure to reduce revenue and gross profit. As for the future trend in carbon fiber product prices, Weihai Guangwei Composites believes that T300 level products have undergone two price adjustments, the risk of price reduction has been released to a certain extent, the newly developed T800 level products have just entered mass production status, and future price fluctuations will mainly depend on the scale of demand. The company will not actively seek price wars and will focus more on producing high-quality products for high value-added sectors. However, under the current overall oversupply in the industry, Civil Fiber product prices are expected to come under some pressure this year, although there is little room for further large price declines.

Weihai Guangwei Composites' current business structure mainly consists of carbon fiber business for equipment and civilian products businesses with three main product lines: general-purpose carbon fiber, wind turbine carbon beams, and prepreg. Based on the company's 2023 annual report, its carbon fiber design capacity is 3,685 tons, with a capacity utilization rate of 70.21%. Against the backdrop of a significant drop in market prices for industrial-grade high-performance carbon fiber, including T700S level/T800S level, the company's related revenues for this area increased slightly by 3.97% to 295 million yuan. Currently, the company has added 4,000 tons of new production capacity, and whether it can be fully absorbed by the market remains to be seen.

The company also admitted in its response to inquiries from the Shenzhen Stock Exchange that the Baotou project is an important part of its 'two highs and one low' carbon fiber development strategy, but that the project may be affected by the poor industry environment after production, and its product market prices may be lower than expected, in addition to adding depreciation of about 130 million yuan annually after new production capacity goes live, which will increase pressure on the company's performance starting from 2024.

It is worth mentioning that Guangwei Composites has already announced that it plans to adjust the stock-based incentive target. In 2023, the company achieved net income of 873 million yuan, a year-on-year decrease of 6.54%. Due to various reasons, the operating results were below incentive targets, leading to the invalidation of the stock-based incentive quota for 2023. Under the current pressure on the industry, the company intends to adjust the 2024 and 2025 company-level performance assessment indicators and attribution arrangements in the incentive plan.