occurrences

On October 30, the company released its 2024 three-quarter report: in the first three quarters of 2024, the company achieved operating income of 2.189 billion yuan, +15.01% year over year; realized net profit of 0.18 billion yuan, -11.80% year over year; weighted average return on net assets was 8.05%, a decrease of 1.61 percentage points over the previous year. The gross profit margin on sales was 20.96%, a year-on-year decrease of 3.65 percentage points; the net profit margin was 9.76%, a year-on-year decrease of 2.43 percentage points. Among them, Q3 2024 achieved revenue of 0.706 billion yuan, +9.35% year over month, and -4.45% month on month; realized net profit of 0.033 billion yuan, or -50.23% year on year, and -53.50% month on month; average return on net assets was 1.48%, down 1.65 percentage points year on year and 1.73 percentage points month on month. The gross profit margin on sales was 18.89%, down 7.36 percentage points from the previous year and 2.73 percentage points from the previous year; the net sales margin was 6.17%, down 5.89 percentage points from the previous year, and 4.87 percentage points from the previous month.

On November 4, according to the official website of the Jiande Government, Zhejiang Xinyao's Waste Electrodes and Waste Battery Resource Recycling Project (Phase I) was approved by the EIA.

reviews

Sales of major products declined in 24Q3, putting pressure on performance. We are optimistic that the company's performance will improve in the fourth quarter. 2024Q3 achieved net profit of 0.033 billion yuan to mother, a decrease of 0.038 billion yuan month-on-month, of which gross profit decreased by 0.026 billion yuan month-on-month and financial expenses increased by 0.007 billion yuan month-on-month. Gross profit declined month-on-month, mainly due to the month-on-month decline in the company's sales of fatty amines and organic solvents in the third quarter. By sector, 2024Q3 fatty amines achieved sales volume of 0.0288 million tons, -8.02% month-on-month, with a unit price of 11222 yuan/ton, -5.49% month-on-month; organic solvents achieved sales volume of 0.0119 million tons, -14.18% month-on-month, with a unit price of 7654 yuan/ton, -9.84% month-on-month; sales of synthetic fragrances reached 0.0061 million tons, +13.94% month-on-month, with a unit price of 32,882 yuan/ton, -6.13% month-on-month. Looking ahead to the fourth quarter, the company's production and sales of fatty amines and organic solvents are expected to gradually resume. At the same time, the new synthetic fragrance project in Ningxia continues to expand, and we are optimistic that the fourth quarter's performance will improve sequentially.

Take a stake in Xincun Technology and enter new fields. On October 21, the company announced that it will indirectly hold 1.73% of Xincun Technology's shares through its Zhongjinghui Industrial Investment Fund. New Storage Technology was incubated by the 3D New Memory Project Technical Team of the Changjiang Advanced Storage Industry Innovation Center. On September 23, Xincun Technology launched the new memory product chip “NM101”. The single chip has a capacity of up to 64Gb and supports random reading and writing. Compared with similar products, the reading and writing speed can be increased by more than 10 times, and the lifespan can also be increased by 5 times, ensuring the long-term stability and reliability of the stored data. By participating in shares, the company ventured into a new field of storage. At the same time, Xinhua Co., Ltd. has been deeply involved in fine chemicals for many years. At the same time, it has independently developed extractants and new extraction methods in recent years, and has rich experience in synthesis and purification. At the beginning of 2024, the company and Xingfu Electronics established a joint venture to lay out electronic grade isopropanol. Taking a stake in Xincun Technology this time may benefit the company's in-depth layout in the field of electronic materials, relying on its own synthesis and purification experience.

Xinyao's first phase of the EIA was approved, and the lithium battery recycling business is progressing steadily. In recent years, the company has continued to make efforts in business sectors such as lithium extraction and lithium recycling in salt lakes, relying on self-developed extractants and new extraction methods, and various tasks are progressing in an orderly manner.

On November 4, the Zhejiang Xinyao Waste Electrode and Waste Battery Resource Recycling Project (Phase I) was approved by the EIA. The project plans to invest 0.239 billion yuan to form a construction capacity of 10,000 tons of lithium iron phosphate battery black powder and 4,000 tons of cathode recycling materials (expected to recover 10,467 tons/year of iron phosphate, 2069 tons/year of battery-grade lithium carbonate, 305 tons/year of aluminum granules, 70 tons/year of sponge copper, 8619 tons/year of sodium sulfate, 4193 tons/year of graphite). The launch of the Xinyao project will lay the production capacity foundation for the company's lithium battery recycling business. At the same time, the company is also actively seeking other cooperation for lithium battery recycling. The future will bring new growth to the company as the company's lithium battery recycling capacity is gradually put into use and the wave of waste battery decommissioning approaches.

Fragrance is deeply tied to Givaudan, and the fragrance business will grow rapidly in the future. The company's fragrance business has a variety of synthetic fragrance products, including the sandalwood series. The main customer is Givaudan. Through years of development, the company's fragrance scale has continued to expand. The holding subsidiary Jiangsu Xinrui has a production capacity of 16,000 tons/year for fragrance products. 2024H1 Jiangsu Xinrui achieved a net profit of 49.15 million yuan, which has a good efficiency release. Construction of the third phase of Xinrui's 18,000 tons/year expansion project has also started. At the same time, the company is actively planning the Ningxia synthetic fragrance project. Among them, the first phase of the Ningxia Xinhua Synthetic Fragrance Product Base is gradually releasing the production capacity of 16,650 tons/year, and the second phase is also being planned. In the first three quarters of 2024, the company's synthetic fragrance sales reached 0.0169 million tons, +68.89% over the same period. With the gradual implementation of Jiangsu Xinrui Phase III and Ningxia project production capacity, the company's fragrance business will grow rapidly in the future.

Profit forecasting and valuation

The company's main business is developing steadily, and the synthetic fragrance and lithium resources business are expected to drive the company to start new growth. The company's net profit for 2024-2026 is expected to be 0.253, 0.359, and 0.509 billion yuan, EPS is 1.37, 1.93, and 2.74 yuan, respectively. The current price is 19.67, 13.88, and 9.78 times PE, maintaining a “buy” rating.

Risk warning

The uncertainty of project investment, the release of new production capacity falls short of expectations, the promotion of lithium resources business falls short of expectations, the risk of fluctuations in raw material prices, and risks caused by increased environmental standards.