Introduction to this report:

Third-quarter results declined slightly month-on-month, showing the resilience of the company's leaders despite macroeconomic factors such as exchange rates and oil prices.

Wait for the anti-aging additives industry to recover and Kangtai Phase II to gain strength.

Key points of investment:

Maintain an “Overweight” rating. The slight month-on-month decline in the company's third-quarter results was mainly due to factors such as declining exchange rates and international oil prices. As the company's main business climate is expected to show a weak recovery, we are optimistic about the company's strong resilience as a leader, so we slightly lowered our profit forecast. The company's 2024-2026 EPS is 1.85, 2.44, and 3.16 yuan respectively (previously 1.98, 2.62, and 3.45 yuan, respectively). Maintain a target price of 36.70 yuan.

Third-quarter results were in line with expectations. According to the company's announcement, in the first three quarters of 2024, the company achieved operating income of 4.265 billion yuan, an increase of 10.57% year on year; net profit to mother was 0.314 billion yuan, up 10.95% year on year. Among them, the third quarter achieved revenue of 1.445 billion yuan, an increase of 6.93% year on year and a decrease of 1.40% month on month. Net profit to mother was 0.094 billion yuan, down 6.47% year on year and 16.95% month on month. The gross profit margin for the third quarter was 20.60%, down 0.83 percentage points from month to month; the net profit margin was 6.34%, down 1.33 percentage points from month to month.

The anti-aging industry pattern is expected to be optimized, and the emerging PI business will help replace domestic production. The anti-aging additives industry experienced concentrated production capacity investment in 2023. Currently, the average profit level of the industry has declined significantly, and some planned production capacity has been postponed or cancelled. We believe that with the introduction of follow-up policies to boost demand, the anti-aging additives industry pattern is expected to gradually improve. However, the price of lubricant additives is related to the price of crude oil, and the gradual release of Kangtai Phase II's new production capacity is expected to help the company make up prices by volume. In addition, the PI business, which the company acquired IPI, is also gradually improving. According to the company's semi-annual report, the PI material localization production line is being prepared for construction in Yixing and is expected to be put into use in 2025. PI products can be used in fields such as AMOLED flexible screens, FCCL for high-end FPCs, QFN packaging for high-end chips, and power batteries. The booming development of flexible displays and flexible circuit boards in the future is expected to drive the rapid expansion of the company's PI business.

Catalysts: The recovery of the anti-aging additives industry, the recovery of the consumer electronics industry, etc.

Risk warning: Production capacity construction falls short of expectations, further decline in product prices, etc.