Key points of investment:
Company announcement: According to the company's announcement, revenue in the first half of the year was 850 million yuan (YoY -4.09%), net profit of 192 million yuan (YoY -4.54%), net profit of 177 million yuan (YoY -9.37%) was deducted, and performance was basically in line with expectations; of these, 23Q2 achieved revenue of 435 million yuan (YoY -2.35%, QoQ +4.74%), achieving net profit of 108 million yuan (YoY -8.02%, QoQ +28.29%), achieving net profit of 1.02 billion yuan (YoY -8.02%, QoQ +28.29%) 100 million yuan (YoY -13.69%, QoQ +34.94%).
The company's silicon dioxide sales increased markedly in the first half of the year, but the decline in product prices and supporting businesses such as sulfuric acid dragged down overall profits. According to the company's operating data announcement, in the first half of the year, the company achieved production and sales of about 135,500 tons of silicon dioxide (YoY +11.64%) and 138,200 tons (YoY +11.83%) respectively, mainly due to the cost performance advantages of the company's products. In the macro format last year, it accelerated its acquisition of new brand certification, and increased its share among downstream tire companies. Reasons for the decline in profit: 1) Due to the decline in raw material prices of soda ash, sulfuric acid, etc. in the first half of the year, some customer product prices were lowered, affecting the average price of products falling 9.13% year on year; 2) Some production costs of the self-used sodium silicate production line went up; 3) The company's related supporting business, such as sulfuric acid, steam, etc., saw a year-on-year decline of 49.67 million yuan in revenue in the first half of the year due to price drag down. Overall, the company's gross margin fell 3.72 pct to 25.57% year-on-year in the first half of the year. On the cost side, the overall sales expense ratio, management cost rate, and R&D expense ratio declined in the first half of the year. Financial expenses were driven by exchange earnings, and the benefits were quite obvious. The exchange earnings for the first half of the year were estimated to be about 30.39 million yuan. Overall, the net profit margin fell 0.11 pct to 22.56% year-on-year.
Domestic and foreign demand was supported in the second quarter, sales volume reached a record high, and prices declined due to changes in raw materials and product structure, thus affecting gross profit margins.
According to the company's business data announcement, 23Q2's silicon dioxide production and sales volume was about 72,700 tons (YoY +19.2%, QoQ +15.9%) and 73,300 tons (YoY +20.1%, QoQ +12.3%), respectively, a record high in a single quarter; in terms of price, it is estimated that the average price of 23Q2 silicon dioxide products was about 5886 yuan/ton (YoY -13.0%, QoQ -6.1%). In terms of raw material prices, the purchase price of 23Q2 soda ash rose 1.64% over the same period. 0.38%, the purchase price of quartz sand decreased by 9.59% and 4.35%, respectively, and the purchase price of sulfur decreased by 63.68% and 21.02%, respectively. Furthermore, in Q2, due to internal and external sales volume restructuring, domestic tires have improved month-on-month due to continued strong travel demand. As a result, the share of domestic sales has increased. The frequency of price adjustments for domestic customers is relatively high, and it has declined as raw material prices fluctuate. Overall, 23q2 gross margin fell 6.32 pct and 3.37 pct to 23.93%, respectively, from the same period last month.
On the cost side, the overall sales expense ratio, management expense ratio, and R&D expense ratio increased by 0.14 pct and 1.76 pct, respectively, from the same period in the second quarter. Financial expenses were estimated to be nearly 40 million yuan. Overall, the net profit margin fell 1.53 pct year on year and increased 4.55 pct to 24.78% month on month due to estimated exchange earnings of nearly 40 million yuan.
The second phase of the Fujian and Thailand projects contributed later increases. According to the company's interim report, as of the end of June 2023, the company's projects under construction were about 328 million yuan, an increase of 35.92 million yuan over the beginning of the year, and fixed assets increased by 34.81 million yuan to 658 million yuan over the beginning of the year. The main project was the Fujian Sanming Sodium Silicate Project. The company currently has a silicon dioxide production capacity of 330,000 tons, is currently under construction in Fujian, and is preparing to build a second-phase production capacity of 25,000 tons in Thailand. The process is continuously optimized to meet the medium- to long-term global carbon emission reduction concept. It is proposed to issue convertible bonds to build a comprehensive biomass (rice husk) resource utilization project in the subsidiary Anhui Axi. Biomass (rice husk) is used as fuel, and rice husk ash generated from rice husk combustion is silicon-based to replace quartz sand to produce highly dispersed silicon dioxide, greatly reducing carbon dioxide emissions and meeting customer ESG performance standards.
Profit forecast and investment rating: Considering that the launch of the company's fund-raising projects has been postponed, it is expected to be gradually put into operation by the end of 2024. Therefore, the profit forecast for 2023, 2024 will be lowered, and 2025 will be added. It is estimated that the net profit for 2023-2025 will be about 4.6, 50, 60 million yuan (the original forecast for 2023-2024 is about 4.6 billion yuan, 560 million yuan), corresponding to PE about 14, 13, 11 times, maintaining the “increase in holding” rating.
Risk warning: large fluctuations in raw materials affect profits; capacity expansion falls short of expectations; downstream tire demand falls short of expectations