On October 25, Wanwei Hi-Tech released its three-quarter report: Q3 achieved revenue of 2.08 billion yuan, -2.8%/+0.09% month-on-month, net profit of 0.071 billion yuan to mother, and +18.8%/-14.3% year-on-month. In the first three quarters, the company achieved revenue of 5.95 billion yuan (-11.2% YoY), net profit of 0.2 billion yuan (YoY -51%), and deducted non-net profit of 0.18 billion yuan (-44% YoY). The company's net profit for Q3 fell short of our forward-looking expectations (0.09 billion yuan), which is a month-on-month increase in expenses during the Q3 period. Considering the PVA pattern is relatively good, the company's PVA optical film/PVB interlayer has been put into production volume one after another, maintaining the “increase” rating.

The PVA boom was still weak in the first three quarters. The company's PVA sales volume in the first three quarters was basically flat at 0.151 million tons year-on-year in the first three quarters. Revenue was -9% to 1.63 billion yuan, and the average price was -9% year-on-year to 0.0108 million/ton. Sales of Vac/PVA fiber/polyester slices/VAE emulsion/rubber powder in the first three quarters were -24%/+1%/+23%/-14%/+26% to 4.6/1.5/0.064/0.063/0.048 million tons, and revenue was -32%/-3%/+22%/-23%/+8% to 2.6/2.4/0.52/0.29/0.42 billion yuan. Benefiting from the production and shipment of PVA optical film, insulation, and photovoltaic grade PVB film, sales volume of PVA optical film/PVB interlayer in the first three quarters was +60%/+52% YoY to 2.87 millionmm0.02/0.0114 million tons, with revenue +46%/+49% YoY to 0.035/0.263 billion yuan. In Q3, the cost of a single quarter was +17.88 million yuan to 0.21 billion yuan, and the comprehensive gross margin was +1.8pct/month-on-month -0.5pct to 13.0%.

The PVA boom is yet to be repaired. Optimistic pattern optimization supports profit center. According to Baichuan Yingfu, the difference between PVA price/PVA-calcium carbide price on October 25 was 0.0113/0.0054 million/ton, compared to -4.2%/-466 yuan/ton at the end of Q3. In the medium to long term, overseas companies have cleared low-end production capacity, compounded by an increase in the cost performance ratio of domestic products. We are optimistic that the global share of domestic PVA companies will continue to rise. Meanwhile, in recent years, emerging demand such as PVA downstream PVB/laundry bead film has continued to grow, and there is no additional production capacity on the supply side in the short term. The PVA competition pattern is relatively good, and supply pattern optimization is still expected to support the PVA profit center.

Projects under construction are progressing smoothly, and new projects are about to be put into production

On August 16, the company announced that it plans to invest 0.12 billion yuan to build a 0.02 million tonne Vae rubber powder project, with an annual output of 0.02 million tons of rubber powder, and the market share is expected to increase steadily; according to the 24-year mid-year report, 7 million m2/year PVA optical film will be partially supplied, and the 0.02 million tons/year photovoltaic grade PVB film project will be delivered.

In terms of projects under construction, the annual production of 0.02 million tons of automotive-grade PVB film is expected to be put into operation by the end of the year; the 20 millionm2 PVA optical film project and the 0.06 millionton/year VAE project (Phase II) are expected to be completed by the end of the year.

Profit forecasting and valuation

Considering the weak PVA market, we lowered our PVA/cement clinker sales forecast. We expect net profit of 0.28/0.46/0.64 billion yuan (previous value 0.34/0.52/0.71 billion yuan) in 24-26, year-on-year growth rate -18%/+66%/+39%, corresponding EPS of 0.13/0.21/0.30 yuan. Refer to comparable company's 25-year Wind consensus average of 21xPE, giving the company 21xPE in 25 years, target price of 4.41 yuan to maintain the increase “” “Hold” rating.

Risk warning: the risk that downstream demand will continue to be sluggish; the risk that the progress of new product release will not meet expectations.