Description of the event
Incident: On April 20, Kaisheng New Materials released its 2024 quarterly report. The company achieved revenue of 240 million yuan in Q1, -3.3% year-on-year, and realized net profit of 25.698 million yuan, or -49.3% year-on-year, and +5.5% month-on-month.
Incident reviews
Carboxyl oxide revenue +20.6% YoY, net operating cash flow +125.6% YoY. In 2023, the company achieved revenue of 990 million yuan, -2.3% year-on-year, and net profit of 160 million yuan, or -32.6% year-on-year.
In 2023, the company's inorganic chemicals business achieved revenue of 200 million yuan, -42.4% year-on-year; the carboxyl oxide business achieved revenue of 660 million yuan, +20.6% year-on-year; and hydroxyl oxides achieved revenue of 110 million yuan, +28.4% year-on-year. 24Q1 The company's financial expenses were 5.279,000 yuan, +3422.6% year-on-year, amortization of interest expenses on convertible bonds; fair value change income of 587,000 yuan, +593.8% year over year; credit impairment losses - 163,000 yuan, an increase of 232.3%, due to the reduction in bad debt provisions due to the recovery of some other accounts receivable that had already been covered by bad debt provisions during the same period last year. Net operating cash flow was $13.727 million, +125.6% year on year; net cash flow from investment - $410 million, a decrease of $40 billion over the same period last year, due to an increase in the scale of idle capital purchases and financial management in the current period. The balance of receivables financing at the end of the period decreased by $8.399 million compared to the balance at the beginning of the year, a decrease of 34.0%, mainly due to the current settlement of prepaid equipment and construction payments.
The gross profit of the sulfoxide chloride business is bottoming out, and the aramid polymer monomer business has excellent profitability. (1) Sulfoxide chloride business. Prices and gross profit were low in 2023 due to weak downstream demand and increased industry competition. In 2023, sulfoxide chloride has a production capacity of 150,000 tons, with a capacity utilization rate of 84.7%. We estimate the gross margin of about 28%. We believe that the price of sulfoxide has reached the bottom. It is expected that as the sulfoxide chloride industry clears up and downstream demand recovers, the company's sulfoxide products will see a recovery in gross profit. The company's advantages in reducing costs through an integrated industrial chain layout are highlighted. Sulfoxide chloride is also used to synthesize aramid polymer monomers, p-nitrobenzoyl chloride, chlorine ether and other products and sold externally. (2) The aramid polymer monomer business is one of the pillars of the company's performance. The industry has a high concentration of production capacity and strong downstream demand. Demand continues to grow under the domestic substitution trend. Currently, it has a production capacity of 31,000 tons, and production will expand to 51,000 tons in the future. We estimate the gross margin of about 37% in 2023, and the gross profit per ton is about 6,000 yuan. The company has established long-term and stable cooperative relationships with leading overseas customers such as DuPont of the United States and Kolon of Korea.
PEKK is expected to benefit from the explosion in demand for humanoid robots. Shipments in the 100 ton class are expected in 24, and LifSi is expected to achieve kiloton shipments. PEKK has extremely high entry barriers. Application areas include aerospace, medical devices, automobile industry manufacturing, etc., and it is expected to benefit from the increase in demand for humanoid robots in the future. The company produces its own high-purity aramid monomers to supply PEKK, which has a cost advantage, has a PEKK production capacity of 1,000 tons/year, and actively expands downstream customers. We expect the company's PEKK to ship 100 tons in 2024. In the LifSi business, the company continues to deliver samples to downstream customers, and we expect to achieve kiloton shipments in 2024.
Investment advice
The company's net profit for 2024-2026 is estimated to be 1.8/27/310 million yuan respectively, corresponding to the company's closing price of 17.64 yuan on May 7, and the 2024-2026 PE is 42.3\ 27.6\ 23.9, respectively, maintaining a “buy-B” rating.
Risk warning
Downstream demand falls short of expectations, industry competition intensifies; new product capacity release falls short of expectations; raw material prices have risen sharply, etc.