Description of the event

The company released its 2024 semi-annual report. From January to June 2024, it achieved operating income of 1.055 billion yuan, a year-on-year decrease of 6.40%; net profit to mother of 69.8373 million yuan, an increase of 2.59%; and net cash flow from operating activities -0.243 billion yuan, a year-on-year decrease of 3895.40%. Among them, revenue for the second quarter of 2024 was 0.53 billion yuan, down 13.61% year on year, up 0.80% month on month; net profit to mother was 34.3424 million yuan, down 8.23% year on year and 3.25% month on month.

Incident comments

The company has been deeply involved in the polyester staple fiber industry for 20 years and has now formed green fiber products including recycled polyester staple fibers and low melting point fibers in multiple application scenarios. The company focuses on differentiation and functionality, has a rich product range, excellent quality, and a wide range of downstream applications. In recent years, along with low melting point fiber release, the company's performance has grown rapidly. As of 2024Q1, the company has a total production capacity of 0.165 million tons of recycled polyester fiber, 0.22 million tons/year of low-melting polyester staple fiber, 0.0213 million tons/year of low-melting polyester filament, etc.

The low melting point and gross margin of recycled non-ferrous metals both improved markedly in the first half of 2024, and overseas revenue and gross profit increased. The gross margins of the company's low melting point and recycled non-ferrous sectors were 11.17% and 7.97% respectively in the first half of 2024, up 3.16% and 0.54% year-on-year, mainly due to a significant drop in operating costs. Although the company's revenue declined year-on-year in the first half of the year, overseas revenue increased sharply. The company's overseas revenue in the first half of the year was 0.218 billion yuan, a sharp increase of 119.72% over the previous year. In the future, as demand for downstream automobiles and the like grows steadily, the company's overseas revenue is expected to continue to rise.

Low-melting polyester staple fibers are widely used downstream. Low melting point fiber's low melting point and high temperature resistance enable it to be processed using hot melt or thermoforming technology in the automobile manufacturing process to produce products that meet the various modeling needs of automobile interiors. Currently, there are more than 40 types of parts based on nonwoven materials used in automobiles. Along with the recovery and recovery of the downstream application market, the unique advantages of low melting point fibers will continue to increase application penetration rate, and the growth space and growth rate are considerable.

Recycled colored polyester staple fibers have significant advantages at low cost. Recycled colored polyester staple fibers use waste polyester raw materials and are obtained through a recycling process after recycling. Compared with native products, recycled products have the advantages of low carbon emissions, good dyeability, low cost, and little fluctuation due to oil prices. Colored is a differentiated segmentation direction for recycled polyester. Subsequent dyeing costs, water consumption, carbon emissions, etc. can be reduced through regenerative dyeing. Demand for color customization has increased, and brand and consumer recognition of the environmental properties of products has increased in the context of superposition double carbon, and the product's sustainability is remarkable.

The company focuses on R&D, and low cost and differentiation go hand in hand to create a leader in the industry segment. The company's production capacity of low-melting polyester staple fibers and recycled colored polyester staple fibers ranks second in the industry, is at the forefront of the industry, and has scale advantages. In the context of high oil prices, recycled colored polyester fiber has significant cost and price advantages over native products. At the same time, the company continues to enrich the differentiated product matrix to meet the customized needs of customers. The company's main products have synergy effects between production processes and customer resources. The management always grasps industry trends and flexibly produces; and along with the company's recycling process experience accumulation and technological progress, work to reduce costs and increase efficiency is in an orderly manner.

Without considering future changes in share capital, the company's net profit from 2024 to 2026 is estimated to be 0.16 billion yuan, 0.21 billion yuan, and 310 million yuan, corresponding to the closing price PE on August 29, 2024 being 10.2X, 8.0X, and 5.4X, maintaining a “buy” rating.

Risk warning

1. Terminal demand falls short of expectations; 2. Project commissioning progress falls short of expectations; 3. Raw material prices have risen sharply.