Matters:
The company released its quarterly report for the year 24. In 24Q1, it achieved revenue of 448 million yuan, a year-on-year decrease of 21.10%; realized net profit of 0.42 million yuan, a year-on-year decrease of 68.12%; and realized net profit without deduction of 0.15 million yuan, a year-on-year decrease of 86.97%.
Commentary:
Profits narrowed due to falling prices for carbon fiber products, and the cost rate increased during the period. Benefiting from the steady increase in production capacity at the Xining base, the company's carbon fiber production and sales grew rapidly. Carbon fiber sales reached 180,000 tons in '23, +92%; due to the shift in supply and demand in the carbon fiber industry and the pace of downstream application expansion, carbon fiber prices were still under pressure. The average sales price of carbon fiber in '23 was about 124,300 yuan/ton, or -41%; on the cost side, as the load on the Xining base increased, the unit cost of the product declined rapidly. In '23, the company's carbon fiber cost per ton was about 88,800 yuan/ton, -21%. Entering 24 years, domestic carbon fiber prices are still low. The average price of 24Q1 small wire bundle T300 (12K) and T700 (12K) was about 9.0 and 143,000 yuan/ton, respectively, -28% and -34% year on year; the average price of large wire bundle T300 (25K) and T300 (50K) was about 7.7 and 72,000 yuan/ton, respectively, -38% and -36% year on year. The 24Q1 company achieved gross margin/net profit margins of 25.25%/9.32%, respectively, -15.6/-13.7 pcts year over year, and the cost ratio for the period was +4.2pct to 19.9% year over year, mainly due to an increase in management expenses.
The price of large-wire carbon fiber gradually increased, and industry profits or phased stabilization. Over the past 24 years, due to the cost of acrylonitrile as an upstream raw material and the gradual increase in incremental demand in downstream areas such as the low-altitude economy, the price of large wire bundle carbon fiber has risen. As of May 3, 2024, domestic T300 (25K) and T300 (50K) prices have risen to 8.0 and 75,000 yuan/ton, respectively, up about 3.9% and 4.2% from the beginning of the year. With current cost support, there may be limited room for carbon fiber prices to continue to drop sharply. After downstream demand is gradually repaired, industry profits may stabilize in stages.
The R&D sector is progressing steadily, and the increase in production capacity and application expansion potential have helped enhance the company's competitive advantage. By the end of 2023, the company's total carbon fiber production capacity had reached 28,500 tons, making it one of the top three in the world. It already has a high market share in pressure vessels and photovoltaic thermal fields, and applications in the field of wind power blades are expanding rapidly. Currently, the company is stepping up research and development of related projects, including T800 grade carbon fiber pre-impregnated products. It is expected that the future will gradually spread to the aerospace and shipping fields. By the end of '23, the progress of carbon fiber aviation application R&D projects had exceeded 64%. The Lianyungang high-performance carbon fiber project with an annual output of 30,000 tons is progressing steadily. Subsequent companies are expected to gain a higher market share in the field of high-performance carbon fiber products and continue to expand product application potential in emerging fields such as electronic 3C, automobiles, and drones. We are optimistic that the company will gain a stronger competitive advantage as an industry leader.
Investment advice: Considering that it will take time for downstream demand to recover, we lowered the company's 24-25 net profit forecast to 3.64 billion yuan and 447 million yuan respectively, corresponding EPS to 0.40 and 0.50 yuan, respectively, and added the 26-year net profit forecast of 617 million yuan, corresponding EPS of 0.69 yuan, and the current market value corresponding to 24-26 PE is 66x, 54x, and 39x, respectively. Considering the bottom of the cycle and the company's long-term growth, referring to the company's historical valuation center, the company was given 65 times PE in 2025, corresponding to a target price of 32.5 yuan, to maintain a “recommended” rating.
Risk warning: the risk of large fluctuations in raw material and energy prices, the risk of the industry's production capacity being released too quickly in the short term, downstream demand falling short of expectations, and the progress of capacity construction and release falling short of expectations.