Description of the event

On October 28, Shandong Heda released its 2024 three-quarter report. In the first three quarters of 2024, it achieved operating income of 1.435 billion yuan, up 21.78% year on year, realized net profit of 0.198 billion yuan, a year-on-year decrease of 13.72%, and realized deduction of 0.18 billion yuan in non-net profit, a year-on-year decrease of 21.45%.

Revenue continues to rise, and sales of vegetable capsules increase

Performance is growing steadily, waiting for downstream demand to recover. Revenue of 0.5 billion yuan was achieved in the third quarter of 2024, up 16.78% year on year and 0.02% month on month, mainly due to increased sales. Net profit attributable to mother was 0.074 billion yuan, up 2.06% year on year and 5.40% month on month; realized deducted non-net profit of 0.063 billion yuan, down 10.86% year on year and 2.97% month on month, mainly affected by fixed asset conversion factors. Due to the downturn in the real estate industry and insufficient domestic demand, building material-grade cellulose ether was greatly affected by the market, but the company still bucked the trend, and cellulose ether sales continued to grow. Sales of pharmaceutical-grade cellulose ether have risen sharply, and the company's vegetable capsule production capacity utilization rate has gradually increased, which will open up new space for the company's performance growth.

The third phase of equity incentives is tied to core employees, demonstrating confidence in the company's future development. Cash dividends are distributed, and investors receive stable returns. On October 19, the company announced the third phase of the equity incentive plan. The number of restricted shares will be granted to 6.43 million shares, accounting for 1.88% of the total share capital. The grant targets include a total of 116 company directors, senior management personnel and core key personnel. The plan will fully motivate employees, and the challenging assessment conditions highlight the company's full confidence in future performance. Considering the company's own good cash flow situation, the company issued an announcement on October 29. The content of the company's equity distribution plan for the first three quarters of 2024 is as follows: based on a total share capital of 341.7068 million shares, a cash dividend of RMB 1.50 yuan will be distributed to all shareholders for every 10 shares, for a total cash dividend of RMB 51.256 million.

The advantages of integrating cellulose ether and vegetable capsules are outstanding. The gradual release of pharmaceutical-grade cellulose ether in production capacity has increased significantly, laying out the vegetable capsule market. The company has strong competitive strength in terms of cellulose ether production and sales scale, production technology, product variety, product quality stability, and production and environmental protection measures, and has now grown to become the number one domestic supplier and the fourth largest cellulose ether supplier in the world. At the same time, the company relied on its own pharmaceutical and food-grade cellulose ether raw material advantages, further extended downstream the industrial chain and independently developed HPMC vegetable capsule products. Currently, it has relatively mature vegetable capsule production technology, achieved large-scale mass production, and reached the leading level of the industry. There are plenty of plant capsule projects under construction. Projects such as “annual production of 16.5 billion vegetable capsules and smart factory upgrade” and “annual production of 15 billion vegetable capsules and intelligent three-dimensional storage upgrade” will further increase production capacity, expand the vegetable capsule market space, and enhance product competitiveness.

Investment advice

We expect the company's net profit to be 0.308, 0.414, and 0.575 billion yuan respectively in 2024-2026 (previous values were 0.31, 0.417, 0.777 billion yuan, respectively), with year-on-year growth rates of 40.0%, 34.4%, and 38.7%.

The corresponding PE was 16, 12, and 8 times, respectively, maintaining the “gain” rating.

Risk warning

(1) Project commissioning progress falls short of expectations;

(2) Prices of raw materials fluctuate greatly;

(3) the risk of relevant policy changes;

(4) International trade risks.