Incident: On the evening of October 14, the company released a performance forecast for the first three quarters of 2024. In the first three quarters of 2024, the company expects to achieve net profit of 0.115-0.125 billion yuan, turning a year-on-year loss into a profit; it is expected to achieve net profit of 0.105-0.115 billion yuan after deduction, turning a year-on-year loss into a profit. 2024Q3, the company expects to achieve net profit of 47.8-57.8 million yuan in a single quarter, up 500%-626% year on year and 4.8% to 26.7% month on month.

Comment:

Pigment production and sales increased, gross margin rebounded, new materials of special polyurethane and special nylon were launched, and the company's performance improved significantly over the same period last year. In the first three quarters of 2024, the production and sales volume of the company's high-performance organic pigment products increased significantly, and the overall gross margin increased significantly. Using the data for the first half of 2024 as a reference, 2024H1's dye business achieved revenue of 0.6 billion yuan, an increase of 30.8% over the previous year, and the gross margin of the corresponding business reached 35.2%, a significant increase of 12.0 pcts over the previous year. In terms of the new materials business, the production capacity of the company's PPDI polyurethane elastomer material project with an annual output of 3,000 tons was gradually released in the first half of 2024. Nearly 60 domestic and foreign customers have already entered the batch procurement stage, providing the company with new profit increases. Furthermore, in September 2024, the company announced the smooth trial production of the MXD6 project with an annual output of 5,000 tons. It will mainly be used in lightweight and barrier packaging materials for automobiles and drones, which is expected to further enhance the company's comprehensive entity and future profit level in the new materials business.

Overseas pigment giants went bankrupt and restructured, and the high-performance organic pigment industry pattern is expected to be optimized. On October 11, 2024, India's Sudarshan Chemical Industries Limited (Sudarshan Chemical Industries Limited) announced that SEBV Europe, a wholly-owned subsidiary in the Netherlands, will acquire the German Faiberger Group's global pigment business with a transaction consideration of 0.1275 billion euros (approximately 1.18 billion Indian rupees). On April 22, 2024, the official website of Huibacher published news that its German subsidiary has filed for bankruptcy. The excessive debt of the German subsidiary of Huiberger is one of the main reasons it filed for bankruptcy. After nearly half a year of bankruptcy filing procedures, Germany's Huiberger bankruptcy and restructuring came to fruition. We believe that Sudarshan's acquisition of Germany's Huibacher will promote the optimization of the global supply pattern of high-performance organic pigments, and enhance the industry position and competitiveness of leading companies in the high-performance organic pigment industry. Furthermore, in the context of stricter environmental protection policies and overcapacity of classic organic pigments, industry leaders represented by Colorful Chemistry will fully benefit as high-performance organic pigments have high technical barriers and the competitive landscape of the superposition industry is improving.

Profit forecasting, valuation and ratings: Benefiting from increased production and sales of high-performance organic pigment products and increased gross margin, combined with the release of production capacity for new products such as specialty polyurethanes, the company's performance increased dramatically. The company's performance is in line with expectations. We maintain the company's profit forecast for 2024-2026. We expect the company's net profit to be 0.175, 0.25, and 0.313 billion yuan respectively in 2024-2026, maintaining the company's “buy” rating.

Risk warning: Product and raw material prices fluctuate, downstream demand falls short of expectations, industry competition intensifies, production capacity falls short of expectations, customer verification progress falls short of expectations, product development risks.