Description of the event

The company achieved operating income of 1.1 billion yuan in the first three quarters, a year-on-year decrease of 30%, and attributable net profit of -8.34 million yuan, a year-on-year decrease of 103%, and a decrease of 129% year-on-year after deducting non-net profit. In the third quarter, revenue of 0.39 billion yuan was achieved, a year-on-year decrease of 30%, and attributable net profit of about -0.03 billion yuan, a year-on-year decrease of 146%, and a year-on-year decrease of 187% after deducting non-net profit.

Incident comments

Product prices continue to fall, and revenue is under phased pressure. Referring to Baichuan's T700/12K carbon fiber prices, the average price of T700/12K carbon fiber in the past three quarters was 0.127, 0.115, and 0.1 million yuan/ton, respectively. By the end of September, the number of industry inventory days reached 90 days or more. At the end of the third quarter, the company's inventory was 0.75 billion yuan, an increase of nearly 0.29 billion yuan over the end of last year, reflecting the current contradiction between supply and demand. The company's sales volume is expected to improve month-on-month in the 3rd quarter, and has yet to achieve positive year-on-year growth. Combined, the average price of products fell by 33% (the average price of Baichuan T700/12K carbon fiber fell 33% year on year), putting pressure on phased revenue performance.

The company's profit was stable month-on-month, but no profit was achieved. The company's gross margin for the first three quarters was about 19%, down 17 percentage points from the previous year. The gross margin for the past three quarters was 25%, 20%, and 12%, respectively. The decline in product prices and the decline in capacity utilization weighed down on gross margin. The company's rate for the first three quarters was about 24.9%, an increase of 6.5 percentage points over the previous year, while the rate for the third quarter was about 25.7%, an increase of 6.9 percentage points over the previous year, mainly due to the increase in the number of employees recruited at the new production site in Lianyungang. In the end, the net interest rate for the third quarter was about -8.6%, down 21.7% year on year, and profitability hit a new low in recent years.

Cash flow has improved significantly. In 2023, along with weakening industry demand, the company's receipt quality deteriorated. In 2024, the company began to strictly control the quality of payments. The payout ratio increased from 0.56 in the same period last year to 1.00, and the pay-as-you-go ratio also improved. In the end, the net cash flow inflow for the first three quarters was 0.23 billion yuan, compared to -0.26 billion yuan in the same period last year, and the quality of operations improved markedly.

Actively explore new needs. In response to the current supply and demand dilemma, the company is actively exploring new demand. On the one hand, it is cost-effective products in the field of wind power and construction, and on the other hand, demand in the aerospace field. In terms of large aircraft applications, the company has improved aviation pre-impregnation cooking performance stability, improved pre-impregnation coating, and has become an evaluation supplier for emergency replacement applications of domestic materials for large domestic aircraft; it has developed T800 grade 24K carbon fiber suitable for liquid molding, and has completed flight verification on new energy aircraft; it has developed technology to simultaneously improve the tensile strength and tensile modulus performance of carbon fiber to achieve the high-strength and high-strength model M46X Successful preparation of grade carbon fiber and simultaneous application verification of T1100 grade, M40X grade, and M46X grade in the aerospace field.

Expect a slowdown in supply investment in the industry. The company's current carbon fiber production capacity is 0.0285 million tons. The construction of the Lianyungang 0.03 million ton project is underway, and it is expected that production lines will enter the trial production stage one after another in 2025. The current competitive pattern of the industry is not stable, and leading companies are still expanding production: large wire bundles are supplied from the Jilin series (medium term target raw wire production capacity 0.2 million tons/or 0.1 million tons of carbon fiber); small wire bundles are supplied by Zhongfu Condor (production capacity target in 2026 is 2.8+3 = 0.058 million tons), Guangwei Composites (current production capacity is 0.37, target 0.01 million tons will be added, and 2000 tons will be put into operation in June 2023), etc. As a result, supply in the industry continues to increase. Considering that import substitution continues to occur, the oversupply situation is expected to ease, but the overall reversal still requires demand exceeding expectations.

The company's net profit for 2024-2025 is estimated to be 0.02 or 0.18 billion yuan, corresponding PB of 4.2 and 4.1 times.

Risk warning

1. The carbon fiber industry's production capacity investment exceeded expectations;

2. Prices of raw materials and energy fluctuate greatly.