The company announced third-quarter results: Q3 achieved revenue of 1.445 billion yuan, +6.9%/-1.4% YoY, net profit to mother 0.094 billion yuan, and -6.5%/-16.9% YoY. In the first three quarters, the company achieved revenue of 4.265 billion yuan, yoy +10.6%, net profit to mother 0.314 billion yuan (not 0.302 billion yuan after deduction), and yoy +10.9% (after deducting yoy +11.8%). The company's third-quarter results fell short of our forward-looking expectations (0.12 billion), which we believe was mainly affected by increased competition in the industry and the decline in overseas demand. Considering the company's electronics-grade PI and life science layout, it is expected that 25-26 will still have room for growth. Maintain an “Overweight” rating.

Q3 Performance is under slight pressure, and I am optimistic that new production capacity will free up space

Affected by increased competition in the industry and the decline in overseas demand, the company's performance in the third quarter was slightly under pressure. The company's gross margin in the first three quarters was +1.9pct to 21.1% year on year. Among them, Q3 companies' gross margin was 20.6%, down 0.8 pct from Q2. The company's expense ratio for the first three quarters was +1.6pct to 12.2% year-on-year; of these, the Q3 expense ratio was +1.2pct to 12.73% month-on-month, mainly due to an increase in R&D expenses and an increase in exchange losses. We believe that with the gradual release of production capacity such as the Zhuhai base, Chifeng base, and the second phase of lubricant additives, the company's profit level is expected to improve in the future.

Collaborative expansion at multiple business levels, with obvious sustainable development advantages

In terms of lubricant additives, according to the General Administration of Customs, the export volume of 2024Q3 lubricant additives in Liaoning Province was 0.0065 million tons, which was basically flat from month to month, and overseas demand was relatively stable. In terms of life science, Orive has completed the production of all products with an annual production of 0.06 million tons of nucleic acid monomers; projects such as the rhododendron project, polyglutamic acid project, hyaluronic acid, and specialty amino acids and derivatives are progressing steadily. The company acquired IPI and entered the high-end electronics-grade PI industry. IPI's related products have been verified by Samsung Electronics, Lianmao Electronics, etc. Using IPI's industry accumulation, the company is preparing to build a localized production line for PI materials in Yixing. It is expected to start construction in the fourth quarter and produce products in '25. The multi-level business layout helps to increase the company's business scale and enhance the company's sustainable profitability.

Profit forecasting and valuation

Considering the decline in overseas demand and short-term pressure on major products, we predict that the company's net profit for 24-26 will be 0.41/0.51/0.57 billion yuan (previous value 0.47/0.58/0.65 billion yuan), with year-on-year growth rates of 13%/24%/12%, respectively, and corresponding EPS of 1.79/2.21/2.47 yuan. Combined with a comparable company's 25-year wind consensus average of 15xPE, the company was given a 25-year 15xPE target price of 33.15 yuan to maintain an “gain” 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.