Incidents:

On April 26, the company released the first quarter report of 2023: in the first quarter of 2023, the company achieved revenue of 1,078 million yuan, +11.78% year on year, +29.88% month on month; achieved net profit of 120 million yuan, +35.50% year on year and +287.10% month on month. The gross profit margin was 26.04%, an increase of 12.89 percentage points over the previous year and an increase of 1.85 percentage points over the previous year; the net sales margin was 11.11%, an increase of 1.92 percentage points over the previous year and an increase of 7.43 percentage points over the previous month.

Key points of investment:

Raw material prices declined, and Q1 performance increased

The main reason 2023Q1 revenue and profit indicators reached the highest level in a single quarter is that the PV renewable energy business recorded a record high shipment volume, and production at full capacity was achieved when an additional 30,000 tons of silicone sealant production line were put into operation. The electronics sector achieved continuous introduction of strategic products such as PUR and three-proof paint among automotive electronics and consumer electronics customers. 2023Q1 all exceeded expectations and achieved sales targets, and overall profit levels rose. The major transportation sector has achieved remarkable cost reduction and efficiency gains, and a series of special lithium battery cooperative development projects and customer development for the anode adhesive business are progressing smoothly. The main reason for the increase in 2023Q1 gross margin over the same period was the decline in raw material prices. Among them, the average price of 107 silicone rubber in 2023Q1 was 17,500 yuan, -47.36% year on year and -1.59% month on month. As of April 26, 2023, the average price of silicone 107 rubber was 16,000 yuan/ton, and the gross margin of 2023Q2 is expected to continue to rise. In terms of period expenses, 2023Q1's sales/management/finance expenses ratio was 3.42%/7.77%/1.23%, respectively, compared to -1.73/-0.06/+1.00pct. The increase in financial fee rates is mainly due to increased exchange losses.

New projects are progressing in an orderly manner, and future growth can be expected

As of 2023Q1, the company's projects under construction were 566 million yuan, an increase of 101 million yuan over the end of 2022. The company's new projects are progressing in an orderly manner. The PV silicone sealant production capacity of 30,000 tons/year in the PV new energy sector was completed and put into operation in March of this year. The solar cell membrane project with an annual output of 36 million square meters is expected to be officially put into operation in the first half of this year. The two-component polyurethane adhesive project for lithium batteries and the lithium battery anode adhesive project with an annual output of about 15,000 tons in the major transportation sector are expected to be completed and put into operation in the first half of this year. The major electronics sector is expected to complete and put into operation a 39,300 ton expansion project for Guangzhou Huitian Electronics in July this year. As the company releases new production capacity, performance is expected to continue to grow rapidly.

Profit forecasts and investment ratings estimate that the company's net profit attributable to the parent in 2023/2024/2025 will be 388/510/627 million yuan respectively. The corresponding PE will be 17.21, 13.08, and 10.64 times, maintaining the “buy” rating.

Risks suggest that the introduction of new products falls short of expectations, the commissioning progress of new construction projects falls short of expectations, the risk of fluctuations in upstream raw material prices, the risk of fluctuations in product prices, the risk of macroeconomic fluctuations, worsening market competition patterns, environmental protection policies and production safety risks.