The company has always been committed to the R&D, production and sales of carbon black and silica products. Up to now, the design production capacity of silicon dioxide is 0.2 million tons/year, and the design production capacity of carbon black is 0.225 million tons/year. The company's products have obtained certification from world-renowned tire companies such as Youke Homa, Zhengxin Rubber, Cooper Tire, and Race Tire, and well-known tire companies such as Triangle Tire, Guizhou Tire, Fengshen Tire, Double Star Tire, Pulin Chengshan, and Linglong Tire among the world's leading tire companies, as well as leading vitamin companies Xinhecheng, and Wanma Polymer Group, a leading company in the field of wire and cable materials.

Revenue has continued to grow in recent years, with silica contributing 70% of gross profit. Revenue for the first three quarters of 2021-2024 was 1.035 billion yuan, 1.306 billion yuan, 1.423 billion yuan, and 1.645 billion yuan respectively, with year-on-year increases of 44.63%, 26.20%, 8.99%, and 15.59%, respectively. Net profit for the first three quarters of 2021-2024 was 0.119 billion yuan, 0.072 billion yuan, 0.114 billion yuan, respectively. 0.2 billion yuan, year-on-year increases were 64.00%, -38.95%, 56.91%, and 75.89%, respectively. Performance declined in 2022 due to rising prices of raw materials such as soda ash and raw oil. 2024H1, carbon black accounts for 49.61% of total revenue, and silicon dioxide accounts for 47.66% of total revenue; judging from the composition of gross profit, carbon black accounts for 20.36% of total gross profit, and silicon dioxide accounts for 74.72% of total gross profit.

Demand in the silicon dioxide market continues to grow rapidly, and there is a demand gap for high-end carbon black. Due to the continuous promotion of green tires, the proportion of silica added has increased, leading to an upward trend in silica used in tires. In terms of consumption, China's silicon dioxide consumption has grown rapidly in recent years. Consumption increased from 1.0216 million tons in 2014 to 1.627 million tons in 2020, with a compound growth rate of 8.06% in 2014-2020. There is a certain structural overcapacity situation in China's carbon black industry, and homogenized competition is serious.

In the low-end carbon black product market, market competition is fierce, and the industry's profit margin is limited; in the middle and high-end product market, such as products such as low rolling resistance carbon black and high-performance carbon black required for green tires, there is still a large demand gap and maintains a high level of profit.

The “0.1 million ton nano carbon material project for high voltage cable shielding materials” aims to achieve localized production of conductive carbon black. In June 2024, the first phase of the project carried out trial production, with a design capacity of 0.05 million tons/year. In November 2024, the company's “conductive carbon black for domestic 110KV and 220KV cable semiconductive shielding materials” products passed the technical certification of the China Machinery Industry Federation, marking that “conductive carbon black for high voltage cable shielding materials” is autonomous and controllable, breaking the situation where conductive carbon black for high voltage cable shielding materials in China has been dependent on imports for a long time.

Profit forecast. We expect the company's net profit for 2024-2026 to be 287, 3.72 million yuan, and 448 million yuan, respectively, and the corresponding EPS is 1.42, 1.84, and 2.22 yuan, respectively. Referring to the valuation of comparable companies in the same industry, PE was given 15 times in 25 years, and the corresponding reasonable target price was 27.60 yuan, which was raised to a “superior to the market” rating.

Risk warning. Policy risk, raw material price fluctuation risk, market risk.