Incident: The company released its 2022 annual report and 2023 quarterly report. In 2022, the company achieved revenue of 2,056 million yuan, an increase of 3.32% over the previous year; net profit of the mother was 231 million yuan, a decrease of 3.76% over the previous year; after deducting net profit of 218 million yuan from the previous year, a decrease of 2.89% over the previous year. 2023Q1, the company achieved operating income of 517 million yuan, an increase of 2.48% over the previous year; the net profit of the mother was 116.751 million yuan, a decrease of 76.19% over the previous year; net profit of non-return net profit and loss after deducting non-recurring profit and loss was 10.103,500 yuan, a decrease of 79.99% over the previous year.

Results remained stable in '22, and business development results were remarkable. In 2022, the company strengthened new product development and new channel marketing efforts to maintain a relatively stable operating income. Affected by rising raw material costs, the company's gross margin fell 3.27pct to 26.70% year on year, and net interest rate fell 0.83pct to 11.22% year on year. By business: (1) the finished frame business achieved revenue of 1,028 million yuan, a year-on-year decrease of 8.27%, a gross profit margin of 32.70%, an increase of 1.00pct over the previous year; (2) the revenue of the line business was 525 million yuan, an increase of 13.62% over the previous year. Among them, the market share of segmented products such as 3D grille panels and embossed wall panels grew significantly. The overall gross margin of the line business reached 26.74%, a decrease of 6.17 pct over the previous year; (3) the particle business achieved revenue of 362 million yuan, an increase of 3.97% over the previous year, gross profit margin of 3.97% over the previous year. 11.94%, a decrease of 7.47 pct over the previous year; (4) PET products contributed to performance for the first time, achieving revenue of 80 million yuan, with a gross profit margin of 0.90%. It is expected that with the gradual release of PET production capacity, the gross margin of PET products will improve significantly; (5) environmental protection equipment achieved revenue of 41 million yuan, an increase of 45.48% over the previous year, with a gross profit margin of 54.97%, an increase of 6.96 pct.

Depreciation and exchange losses weighed down 2023Q1 results, and R-PET performed brilliantly. 2023Q1 continued to optimize its product structure, enhance its overall resilience to risks, and its revenue remained stable, up 2.48% year-on-year and 8.22% month-on-month. Among them, thanks to the company's continuous expansion in the field of food-grade high-quality recycled PET applications, R-PET products achieved revenue of 46.78 million yuan, showing impressive performance. The net profit of 2023Q1 returned to the mother fell 76.19% year on year, mainly due to:

(1) Two overseas base projects in Malaysia and Vietnam were put into operation and investment in the original domestic production base increased, and depreciation of fixed assets and amortization of intangible assets increased, with a year-on-year impact of 20.53 million yuan; (2) 2023Q1, a slight appreciation of the RMB against the US dollar, and exchange losses affected the amount of financial expenses of 14.18 million yuan; (3) the amount of management expenses accrued from equity incentives was 3.18 million yuan; excluding the above influencing factors, the company's net profit increased slightly year-on-year in 2023Q1.

Overseas production capacity has been gradually released to ensure continued growth in performance. In 2022, the company's “50,000 tons/year PET recycling project” was successfully put into operation in Malaysia, opening up the three major high-quality PET recycling products: SSP food grade particles, r-PET sheets and high-end fiber grade particles. 2023Q1 achieved revenue of 46.78 million yuan; the first phase of the company's “2.27 million boxes of plastic decorative frames and wire per year project” in Vietnam was put into operation in June 2022. The company is committed to continuous capacity release and factory inspection progress for major European and American customers. The capacity utilization rate in November-December 2022 has climbed to about 60% , achieving operating income of 27.78 million yuan. Currently, the company has a recycled PS production capacity of about 100,000 tons/year. It has put into operation 50,000 tons/year and is building 100,000 tons/year of recycled PET production capacity. The long-term plan is to expand the recycled PS production capacity to 300,000 tons and the recycled PET production capacity to 1 million tons, driving continuous growth in performance.

Investment advice and valuation: We adjusted our profit forecast for 23-24 and added a profit forecast for 2025. We expect the company's revenue for 2023-2025 to be 2,452 million yuan, 3,024 million yuan, and 3,591 million yuan respectively. The growth rates are 19.2%, 23.3%, and 18.8% respectively, and the net profit of the mother is 272 million yuan, 367 million yuan, and 443 million yuan respectively. The growth rates are 17.9%, 34.8% and 20.9% respectively to maintain the “increase” investment rating.

Risk warning: the risk that overseas sales revenue is relatively high, the risk that project construction falls short of expectations, the risk of multinational supply of raw materials, etc.