Incident: On October 24, 2024, the company released its 2024 three-quarter report. The company achieved total revenue of 0.648 billion yuan in the first three quarters, +10.85% year-on-year, and achieved net profit of 0.198 billion yuan, or +18.07% year-on-year. Among them, Q3 achieved revenue of 0.234 billion yuan in a single quarter, +8.84% year-on-year, and realized net profit of 0.07 billion yuan to mother, or +19.35% year-on-year.

Comment:

Production capacity was gradually implemented, and Q3 performance increased month-on-month. According to Wind, in the Q3 quarter, the company's gross sales margin was about 44.87%, up from 44.84% in Q2, and achieved a steady increase. The company's Guangzhou Kecheng new polymer materials additive construction project has a design capacity of 0.0366 million tons, of which 14,400 tons of production capacity were completed in December 2023. The remaining 22,200 tons of production capacity include 16,900 tons of nucleating agents and 5,300 tons of synthetic hydrotalcite. It will also be completed and gradually released in 2024. The continued release of new production capacity will drive continued growth in the company's performance.

Demand for nucleating agents is increasing steadily, and there is broad scope for domestic replacement. Polypropylene is the most important way to consume nucleating agents. It can be used in industries with outstanding safety requirements such as food contact materials, medical devices, infant products, lithium battery materials, etc., and can also meet environmental requirements in the fields of automotive parts, household appliances, and construction materials. According to Baichuan Yingfu statistics, China's new polypropylene production capacity is expected to increase by 7.3 million tons/year in 2024, and will continue to grow in 2025-2026. With the release of new production capacity, downstream polyolefin applications showed a trend of high-end modification, and the demand for nucleating agents for high-performance polyolefins increased. According to the “In-depth Research on the Current Status and Future Investment Forecast Report of China's Nucleating Agent Industry (2023-2030)” published by the Research Report Network, the global nucleating agent market is expanding steadily. China's nucleating agent import replacement rate in 2023 is 30%. It is expected that the global nucleating agent market sales will exceed 1 billion US dollars in 2025, and the import substitution rate will reach 34%.

Emphasis is placed on leading R&D technology, and the market share is expected to continue to grow. Through independent research and development, the company successfully developed and mass-produced nucleating agents and synthetic hydrotalcite to achieve breakthroughs in similar domestic products; to gradually breaking through technical barriers and entering the supply chain system of large global petrochemical energy enterprises with high standard certifications such as FDA and ECOVADIS and entry qualifications for mainstream polypropylene production processes; to now it has large-scale production capacity for more than 200 different models.

Profit forecast and valuation: Optimistic about continued production capacity investment and deepening domestic substitution. The company is expected to achieve net profit of 0.267/0.357/0.409 billion yuan in 2024/2025/2026, corresponding to PE of about 21/16/14 times, respectively. Covered for the first time, it is covered for the first time, giving it a “buy” rating.

Risk warning: Downstream demand falls short of expectations, performance forecasts and valuations fall short of expectations.