The company published its 2022 annual report and 2023 quarterly report. Qi Xiang Tengda achieved revenue of 29.81 billion yuan in 2022 (-14.6% year on year) and net profit of 634 million yuan (-73.5% year on year). The company achieved revenue of 6.14 billion yuan (-22.5% year-on-year) and net profit of -79 million yuan (-114.2% year-on-year) in 2023Q1. The pressure on the company's performance was mainly due to (1) rising prices of raw materials such as crude oil; (2) due to the impact of the epidemic and the downturn in the real estate chain, 2022H2 began to decline in demand and prices for butadiene and other products.
Production capacity of methyl ethyl ketone and maleic anhydride expanded, and product revenue increased significantly year-on-year in 2022. In terms of methyl ethyl ketone, the company completed and put 80,000 tons/year of methyl ethyl ketone into production in 2022. The current production capacity is 260,000 tons/year, ranking first in the country. Thanks to the scale effect brought about by the expansion of production capacity and the increase in bargaining power, compounded by shrinking supply in the global market, the company's methyl ketone sales volume, especially export trade, increased by 3.74 billion yuan in 2022, an increase of 63.8% over the previous year; achieved gross profit of 1.01 billion yuan, an increase of 85.82% over the previous year. In terms of maleic anhydride, the company completed 200,000 tons/year maleic anhydride and put into operation, boosting revenue of maleic anhydride products by 22.7% year-on-year. With the deepening implementation of the “Plastic Restriction Order” and the release of the company's related production capacity, we believe the company's maleic anhydride business revenue will continue to grow.
Expand the field of new materials and improve the integrated layout of the C4 industry chain. The company plans to build an “isobutene-MMA-PMMA” integrated industrial chain. Currently, 200,000 tons/year of nitrile latex and 200,000 tons/year of MMA devices have been built. The 100,000 tons/year PMMA unit is expected to be completed in 2023. After production is put into operation, the isobutene component in C4 will be efficiently utilized in LCD displays, optical glass and other fields to enhance the added value of products.
Extend the C3 industry chain horizontally to cultivate new momentum for development. The company's 700,000 tons/year PDH plant has been completed and put into operation. The 300,000 tons/year propane oxide project, 80,000 tons/year acrylic and 60,000 tons/year butyl acrylate project are about to be put into operation. The project progress at the end of 2022 was 68.2% and 92.3% respectively. After the completion of the project, the company will form a “propane-propylene-propenylene-propane-epoxide/acrylic acid” C3 industry chain to enhance market share and profitability.
After Shanneng's acquisition, the controlling shareholder's risk was resolved, which favors the increase in valuation. As a restructuring investor, Shanneng New Materials is obtaining 80% of Qixiang Group's shares through the restructuring process. After the acquisition is completed, the indirect controlling shareholder of the company will be changed to Shanneng New Materials, and the actual controller will be changed to the Shandong Provincial State-owned Assets Administration Commission. We believe that after the completion of Shanneng New Materials, the risks of the company's controlling shareholders will be addressed, and the valuation will increase.
Investment advice. Since the recovery in downstream demand fell short of expectations, the prices of products related to the C4 industry chain have been low for a long time. It is expected that the company's performance will be greatly affected, so profit forecasts and target prices have been lowered. We expect Qixiang Tengda's net profit from 2023 to 2025 to be 821 million yuan, 1,283 million yuan, and 2,306 million yuan respectively, and EPS of 0.29, 0.45, and 0.81 yuan respectively (previous forecast: EPS for 2021-2023 will be 1.45, 1.68, and 1.96 yuan respectively). Referring to the valuation level of comparable companies, they were given 25 times PE in 2023, the corresponding target price was 7.25 yuan, and the corresponding PB was 1.44 times (the original target price was 21.75 yuan, 1.4-for-1 was equivalent to 15.53 yuan after the stock split, corresponding to 22 times PE in 2021, a 53.3% reduction), maintaining the “superior market” investment rating.
Risk warning. Product prices fluctuated greatly, downstream demand fell short of expectations, and the progress of projects under construction fell short of expectations.