Core views

In the first half of 2024, the company achieved revenue of 3.518 billion yuan, +26.90% year-on-year, achieved net profit of 0.153 billion yuan, +52.42% year-on-year, and achieved net profit deducted from non-mother of 0.147 billion yuan, or +50.11% year-on-year. Revenue for Q1 and Q2 was 1.639 billion yuan and 1.879 billion yuan, respectively, and net profit to mother was 0.07 and 0.082 billion yuan, respectively. Looking ahead to 2024, the company has successfully put into operation 0.18 million tons in Tengzhou, further enhancing the company's cost advantage. The company's PA6 and PA66 production capacity will continue to expand in the future. PA6 production capacity includes 0.124 million tons in Hangzhou and 0.22 million tons in Tengzhou Phase II, Shandong. PA66 production capacity includes 0.08 million tons in Zibo, and growth can be expected.

occurrences

The company released its 2024 mid-year report

In the first half of 2024, the company achieved revenue of 3.518 billion yuan, +26.90% year-on-year, achieved net profit of 0.153 billion yuan, +52.42% year-on-year, and achieved net profit deducted from non-mother of 0.147 billion yuan, or +50.11% year-on-year. Revenue for Q1 and Q2 was 1.639 billion yuan and 1.879 billion yuan, respectively, and net profit to mother was 0.07 and 0.082 billion yuan, respectively.

Brief review

Volume and price rose sharply, and performance increased in the first half of the year

Driven by consumption of textile clothing such as sunscreen products and outdoor clothing, demand for nylon civilian yarn is strong. At the same time, demand for engineering plastics increased. The PA6 price spread widened in the first half of the year. At the same time, the company's production and sales increased, and performance increased steadily. According to Wind data, the average price of 2024H1 nylon 6 was 14,381 yuan/ton, +1,358 yuan/ton, and the average price of caprolactam was 13,292 yuan/ton, +976 yuan/ton year on year. The price difference was 690 yuan/ton, or +353 yuan/ton year on year. The company's nylon 6 sales volume in the first half of the year was 0.2631 million tons, +17% year over year. Benefiting from the sharp rise in volume and price, the company's net profit to mother was 0.153 billion yuan, +52% over the same period last year. The gross margin for the first half of the year was 8.22%, +1.14pct year on year, and the net margin was 5.20%, +1.25pct year on year.

On a quarterly basis, according to Wind data, the average price of 2024Q2 nylon 6 was 14,321 yuan/ton, -120 yuan/ton, and the average price of caprolactam was 1,3062 yuan/ton, 460 yuan/ton. The price difference was 867 yuan/ton, or +354 yuan/ton month-on-month. Q2 sales volume was 0.1421 million tons, +17% YoY. Q2 benefited from a sharp rise in volume and price, and net profit to mother was 0.082 billion yuan, +18% over the previous month.

The gross margin was 8.46%, +0.52 pct month-on-month, and the net margin was 5.37%, +0.36 pct month-on-month.

Demand is growing steadily, and industry concentration is gradually increasing

According to Baichuan News data, in 2017-2023, China's apparent consumption of PA6 slices increased from 2.94 million tons to 4.35 million tons. The compound annual growth rate was 6.74%, and demand grew steadily. Currently, domestic nylon 6 slices are mainly used in nylon fibers, engineering plastics and films. According to Baichuan Information, the three major fields account for 70%, 17%, and 8% respectively. Nylon fiber is the main reason for the increase in demand for nylon in the past. At the same time, with the increase in personalized demand for outdoor sports, etc., there is huge room for future market growth for downstream civilian fiber application products. At the same time, compared with overseas countries, Western Europe, the United States, Japan and other countries all accounted for more than 50% of the consumption of engineering plastics and films in 2016. With the rapid development of the automobile industry and high-speed railways and the acceleration of the localization process of their components and the further popularization of nylon film, the consumption of nylon 6 engineering plastics and films is expected to increase dramatically. In recent years, under fierce industry competition, other enterprises have gradually withdrawn from the market, and industry concentration has gradually increased. The company's production technology and product performance are at a high level. Compared with high-end imported products, it is also a first-level enterprise in the nylon 6 slicing industry. It is the industry leader in product quality and cost control to ensure the company's steady development.

Production capacity continues to expand and product structure is continuously optimized

The company currently has a PA6 production capacity of 0.51 million tons. The Hangzhou headquarters is planning to expand new nylon materials. The products include modified PA6, copolymerized PA, special PA, etc., and the second phase is 0.124 million tons, which is expected to be put into operation in 2024; Tengzhou has prepared a subsidiary Polymerization and Luhua to produce 0.4 million tons of new PA6 materials per year. The first phase of the 0.18 million ton project is expected to be put into operation in 2023. The second phase of 0.22 million tons is expected to be ready in the fourth quarter of 2024 Reached trial operation status. The first phase of 0.08 million tons of PA66 in the Zibo plant in Shandong Polyshun is being actively promoted. It is expected to be put into operation in 2025, and the company's ongoing construction projects will reach 0.297 billion yuan by the end of the first quarter of 2024. With the gradual implementation of the above projects, the company's production capacity will increase in the next few years, forming a larger scale advantage, which can meet the various needs of the market and customers. It is expected that the market share will further increase, and the advantages of scale will become prominent. Upstream in the industrial chain, the company's Tengzhou project cooperated with upstream Lunan (Yankuang Group) caprolactam and joined forces to open up the industrial chain layout. Along with the increase in the company's production capacity, optimization of product structure, and upstream layout of the industry, the company's profitability and scale are expected to increase rapidly.

Profit forecast and valuation: The company's net profit for 2024-2026 is expected to be 0.291, 0.38, and 0.552 billion yuan, respectively; EPS is 0.92, 1.20, and 1.75 yuan respectively; the corresponding PE is 10.4X, 7.9X, and 5.5X, respectively, maintaining a “buy” rating.

Risk warning: Risk of raw material price fluctuations (the company's main raw material is caprolactam, which is a petrochemical or coal chemical derivative. Its price is affected by various factors such as national industrial policy, changes in market supply and demand, and changes in petroleum prices. Large fluctuations in caprolactam prices in the short term may cause the company's inventory management, procurement arrangements and product price adjustments to not effectively reduce or absorb the impact of raw material price fluctuations, which in turn affects business performance); downstream demand falls short of expectations (macroeconomic fluctuations will affect downstream demand for PA6. If demand falls short of expectations, it may lead to product prices and Profit decline, which in turn affects the company's profit); industry competition intensifies (if the company cannot continue to innovate in the functional characteristics of the product, maintain high product quality and good market reputation, or if the overall production capacity of the industry increases dramatically, and oversupply forms vicious competition, it is difficult to maintain steady sales growth and continuous increase in market share, which affects the company's operating performance); project commissioning falls short of expectations (if the production capacity does not meet expectations, it will affect the company's product production and sales, which in turn affects operating performance), etc.; the issuance of convertible bonds falls short of expectations (if the company's financing fails to meet expectations), it may affect the company's production It can expand progress, which in turn affects performance).