Description of the event

On October 30, 2024, Cathay Biotech released its 2024 three-quarter report. The company achieved operating income of 2.215 billion yuan in the first three quarters of 2024, up 41.49% year on year; realized net profit of 0.345 billion yuan, up 9.97% year on year; realized net profit deducted from non-mother of 0.335 billion yuan, up 25.51% year on year. The company achieved operating income of 0.771 billion yuan in 2024Q3, up 44.06% year on year, up 1.45% month on month; net profit to mother was 0.098 billion yuan, up 35.69% year on year, down 31.27% month on month; after deducting non-net profit, it was 0.96, up 84.38% year on year, down 30.10% month on month.

Third-quarter revenue reached a record high, and performance was slightly under pressure from month to month

Revenue growth was driven by the amount of sebacic acid, and performance was slightly pressured by exchange rate fluctuations. This is due to a sharp increase in sales volume of the company's new product sebacic acid compared to the same period last year. Performance declined slightly from month to month due to fluctuations in exchange earnings. At the same time, benefiting from the company's seizing market opportunities and increasing product sales efforts, 24Q3 increased investment in R&D, and R&D expenses rose 70.79% year on year and 24.37% month on month. The company adheres to the R&D-driven strategy, continues to carry out technological breakthroughs and innovative changes, and continuously lays out new products.

Improve quality, increase efficiency, and focus on returns, and repurchases show confidence in development

It is proposed to repurchase more than 10 million yuan of shares and lay out bio-based polyamide spinning materials. On August 30, 2024, the company invested 30 million yuan to establish Anhui Hexian New Materials Co., Ltd., holding 100% of the shares. Its industry is the textile industry. This investment will further increase the company's production capacity of bio-based polyamide spinning materials. On October 22, the company announced that it intends to repurchase shares through centralized bidding transactions. The total repurchase capital shall not be less than 10 million yuan, not more than 20 million yuan, and the repurchase price shall not exceed RMB 67 per share. The price is not higher than 150% of the average trading price of the company's shares in the 30 trading days before the board of directors passed the repurchase decision. The repurchase period is within 12 months from the date the board of directors reviewed and approved the repurchase plan.

New quality productivity empowers future industrial development, and new projects are progressing steadily

The bio-based materials industry cluster is being built steadily, and production capacity will gradually be released. Liu Xiucai, chairman and president of the company, said earlier at the Hefei Biomantry Industry Development Conference that under the “Hefei City-China Merchants Innovation and Technology-Kaisai Biotech” cooperation framework, Kaisai Biotech plans to engage in three areas of business, including: developing application scenarios for bio-based materials, building a bio-based materials industry cluster, and constructing a high-throughput “AI+BT” R&D platform for artificial intelligence robots. At present, the company's Wusu Technology project with an annual output of 0.03 million tons of long chain binary acid and 20,000 tons of long chain polyamide was completed in 2023, laying the production capacity foundation for downstream applications and business expansion. The Taiyuan bio-based polyamide continuous fiber composite pilot line will also support the process development and application promotion of composites. Meanwhile, industrial projects related to biobased materials are under construction, such as projects with an annual output of 0.5 million tons of bio-based pentanediamine, an annual output of 0.9 million tons of bio-based polyamide, and a bio-fermented sulfate project with an annual output of 0.3 million tons.

Investment advice

Due to cost-side fluctuations in the second half of the year, we expect the company's net profit to be 0.473, 0.655, and 0.857 billion yuan (previous values were 0.527, 0.712, and 0.925 billion yuan), respectively, with year-on-year growth rates of 29.1%, 38.4%, and 30.8%. The corresponding PE was 57, 42, and 32 times, respectively. Maintain a “buy” rating.

Risk warning

(1) The risk of macroeconomic and industrial policy fluctuations;

(2) The risk of new project construction progress, product delivery progress and sales uncertainty; (3) the risk of changes in import and export policies such as tariffs and the international trade environment; (4) the risk of exchange rate fluctuations.