Description of the event

The company released an interim report: In the first half of 2024, revenue was about 1.78 billion yuan, an increase of 3% year on year; attributable net profit was about 0.04 billion yuan, down 17% year on year, after deducting non-net profit of about 0.035 billion yuan, an increase of 9% year on year. 2024Q2 revenue was about 0.86 billion yuan, down 13% year on year; attributable net profit was about 0.019 billion yuan, down 48% year on year; after deducting non-net profit, about 0.019 billion yuan, down 38% year on year.

Incident comments

Viscose filament is booming, and carbon fiber is still at the bottom. The company's revenue in the first half of the year was about 1.78 billion yuan, of which revenue from viscose filaments was about 1.35 billion yuan, up 10% year on year, accounting for 76% of total revenue; revenue from carbon fiber products was about 0.095 billion yuan, down 46% year on year, accounting for 5% of total revenue. The company's gross margin in the first half of the year was about 15.9%, up 2.8 percentage points year on year, mainly contributing to the rising price of viscose filament. In the first half of the year, the gross margin of viscose filament was about 20.8%, up 3.8 percentage points year on year; while the gross margin of carbon fiber products was -11.2%, down 14.5 percentage points year on year. The company's expense ratio for the first half of the year was about 10.9 percentage points, up 0.8 percentage points year on year. Among them, sales, management, R&D, and finance rates changed +0.1, -0.1, +0.4, and +0.3 percentage points year-on-year, respectively. Net investment income loss in the first half of this year was about 21 million yuan (mainly loss from Jilin Guoxin); loss was about 4 million yuan in the same period last year (Qifeng Chemical Fiber's profit was recovered). At the same time, there was about 18 million non-operating income (cooperative development income) in the same period last year. In the end, net interest rate for the first half of the year was about 2.3%, down 0.6 percentage points year on year, but after excluding the impact of net investment income and non-operating income, it increased by more than 1 percentage point year on year.

The price of carbon fiber fell year on year, and sales were under control. The company's carbon fiber business sales revenue in the first half of the year was about 0.095 billion yuan, down 46% year on year. The main reason was the sharp drop in price. Refer to Baichuan News's average price of large wire bundle carbon fiber. In the first half of the year, the price without tax was about 0.067 million/ton, a year-on-year decrease of about 30%. At the same time, the company may have controlled sales to reduce losses.

The gross margin of the company's carbon fiber business in the first half of the year was -11.2%, a sharp drop of 14.5 percentage points year on year. The main reason was the sharp drop in price. At the same time, the capacity utilization rate in the first half of the year was low, leading to large amortization of machinery, equipment, personnel, etc.

In addition, the participating carbon fiber subsidiary Jilin Guoxin also actively contracted. Revenue for the first half of the year was only 0.024 billion yuan and net profit was -0.041 billion yuan, while revenue for 2022H and 2023H was 0.466 and 0.115 billion yuan respectively, and net profit was +0.062 and -0.046 billion yuan, respectively.

Currently, with the exception of military products, the carbon fiber industry is in a state of loss. Currently, we have noticed that some companies will cut production and stop production or slow down. It is expected that new production plans will also slow down. It is expected that supply will gradually be digested before we can see a stable or upward trend in carbon fiber prices.

The volume and price of the company's original main business, viscose filament, has risen sharply. The company's revenue for viscose filament in the first half of the year was about 1.35 billion yuan, an increase of 10% over the previous year, achieving a sharp rise in volume and price. 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 2024, with the popularity of national clothing such as horse masks, demand for viscose filament has increased significantly, and supply and demand have tightened. The market price has risen from 0.042 million/ton at the end of 2023 to 0.0455 million/ton at the end of June. The company's gross margin of viscose filament has returned to more than 20% in the first half of the year, the highest level in history after 2019. The company's product advantages are remarkable. The production capacity ranks second in China. The additional production capacity of 0.01 million tons of viscose filament was installed and put into operation in the first half of the year. After production, the production capacity reached 0.09 million tons, and the market share will reach 30%, fully benefiting.

The company's net profit for 2024-2026 is estimated to be about 0.13, 0.21, and 0.26 billion yuan, corresponding to the PE valuation of 58, 35, and 28 times, and continues to be recommended.

Risk warning

1. The progress of the carbon fiber business falls short of expectations;

2. Prices of raw materials fluctuate greatly.