Event: on October 11, 2023, Shenma released its third quarter 2023 report that the company's operating income in the first three quarters of 2023 was 9.431 billion yuan, down 17.60% from the same period last year, and its net profit was 70.3586 million yuan, down 85.63% from the same period last year. Deducting non-net profit was 50.2301 million yuan, down 89.06% from the same period last year. The corresponding operating income of 3Q23 was 3.326 billion yuan, up 14.86% from the previous month; the net profit of returning to the mother was 100 million yuan, and the non-net profit was 89 million yuan.
The company's performance in the first three quarters declined compared with the same period last year, and 3Q23 performance turned from loss to profit. The company's net profit fell 85.63% in the first three quarters compared with the same period last year, and the profit level has declined greatly compared with previous years, which is related to the decline in the price of the company's main products. The company's 3Q23 homing net profit turned into a profit, with an increase of 826.80% over the previous month, mainly due to the simultaneous increase in sales and prices of PC products, driving the growth of performance in the third quarter. We expect the company's performance to continue to repair as the macro economy stabilizes and the downstream demand side recovers.
The 3Q23 cash flow of the company varies greatly. The net cash flow generated by operating activities was-567 million yuan, a decrease of 135.57% over the same period last year. The net cash flow generated by investment activities was-2.582 billion yuan, a decrease of 49.10% over the same period last year. The net cash flow generated by fund-raising activities was 4.482 billion yuan, an increase of 198.84% over the same period last year.
The balance of cash and cash equivalents at the end of the period was 8.971 billion yuan, an increase of 8.67% over the same period last year. Accounts receivable fell 2.27% compared with the same period last year, and the turnover rate of accounts receivable decreased to 7.93 times from 9.17 times in the same period last year. Inventory turnover decreased from 7.14 to 5.96 in the same period last year.
The price of 3Q23 nylon 66 products is affected by the price of raw materials. The prices of 3Q23 nylon 66 industrial filament / nylon 66 cord fabric / nylon 66 chips / adipic acid / civil filament / bisphenol A / PC products are 26,000 yuan / ton, 32,000 yuan / ton, 16,000 yuan / ton, 0.8000 yuan / ton, 18,000 yuan / ton, 9000 yuan / ton, 11,000 yuan / ton respectively. Month-on-month-5.37% Universe 8.97% Universe 5.86% Universe 3.01% Universe 0.21% Accord 13.45% Universe 1.81%. The prices of the main raw materials adiponitrile / refined benzene / hydrogen / phenol are 17,000 yuan / ton, 0.68 million yuan / ton, 1.4 yuan / cubic meter, 0.73 thousand yuan / ton, respectively, compared with-9.48%, 14.30%, 14.30%, 1.40%, 9.54%. We believe that the price of the company's nylon 66 series products continues to fall due to the lack of cost support at the raw material end, which has had a certain impact on the company's performance.
PC production and sales month-on-month to achieve a higher growth rate, helping to improve the performance of 3Q23. The production of adipic acid, nylon 66 slices, PC, nylon 66 cord fabric, bisphenol A, nylon 66 industrial silk and civil silk produced by 3Q23 is 54000 tons, 42000 tons, 24000 tons, 18000 tons, 13000 tons, 12000 tons and 4000 tons respectively, and the month-on-month production of adipic acid, nylon 66 slices, PC, nylon 66 slices, PC, nylon 66 cord fabric, bisphenol A, nylon 66 industrial silk and civil silk is 54000 tons, 42000 tons, 24000 tons, 18000 tons, 13000 tons, 12000 tons and 4000 tons, respectively. The sales volume was 54000 tons, 44000 tons, 20000 tons, 19000 tons, 13000 tons, 13000 tons and 4409 tons respectively, and the month-on-month sales volume of 2Q23 was-2.4% Universe, 1.14%, 201, 10.9%, 5.89, 26.37, 12.39%, respectively.
In the third quarter, the company's PC plate output and sales showed a rapid growth trend, and the price of PC plate products also rose, driving the company's 3Q23 performance up.
The company's main business is focused on nylon 66 and other materials. The company's main products are industrial silk, cord fabric, nylon 66 chips, adipic acid, bisphenol A, PC, other products are cyclohexane, aramid fiber, flame retardant fiber, raw liquid color silk, nylon 6 civil wire and so on. The company's nylon 66 production capacity ranks among the top five in the world. According to the company's annual report, by 2022, the total production capacity of nylon 66 industrial silk, nylon 66 cord fabric, nylon 66 slices, under construction, adipic acid, nylon 6 civil silk, PC and bisphenol An are 133000 tons, 90,000 tons, 190000 tons, 40,000 tons, 290000 tons, 30,000 tons, 100000 tons and 130000 tons respectively.
Set up a subsidiary of Longan Chemical Industry to improve the raw material guarantee ability. In August 2023, the company announced that it planned to set up a wholly-owned subsidiary Henan Shenma Longan Chemical Co., Ltd. in Shilong District, Pingdingshan City, Henan Province, to prepare for the establishment of 40000Nm3/h coke oven gas comprehensive utilization project. Long'an Chemical Industry uses the by-product coke oven gas resources of coking enterprises around the location to carry out deep processing of coke oven gas to produce liquid ammonia and LNG products, which can not only improve the comprehensive utilization value of rich gas, but also improve the atmospheric environment, optimize energy structure, reduce coal consumption, supplement natural gas supply, improve the raw material guarantee capacity of nylon industry chain, and reduce production costs. After the completion of the project, the company will increase the range of products, enhance economic strength and competitiveness, and promote the development of the regional economy.
The localization of adiponitrile is accelerated, which is good for the company's nylon 66 business for a long time. Domestic Huafeng Group has realized the localization of adiponitrile, the production capacity of butadiene to adiponitrile has been put into production in China, and the localization process of adiponitrile has been accelerated. Adi'an, a wholly owned subsidiary of the company, has entered the construction period with an annual output of 50,000 tons of adiponitrile, which is expected to enhance the company's self-sufficiency in raw materials and realize the integrated operation of the industrial chain. We believe that the localization process of adiponitrile in the company and other domestic enterprises is accelerated, and it is expected to gradually achieve domestic adiponitrile self-sufficiency. In the long run, the price of adiponitrile tends to decline and return to a reasonable price range. At the same time, the price fluctuation of adiponitrile is expected to narrow in the future, thus reducing the cost of nylon 66, which is expected to promote the rapid expansion of domestic nylon 66. We believe that the company as the domestic nylon 66 industry leader, the company nylon 66 business is expected to benefit from the domestic process of adiponitrile.
Invida's closure of the adiponitrile plant may have an impact on the nylon 66 industry chain. On October 5, 2023, Invida announced that it would immediately begin to close its adiponitrile production facility in Orange, with an adiponitrile production capacity of 516500 tons per year, accounting for nearly 40% of Invida's total production capacity. According to the International Energy Network, by the end of 2022, the total global adiponitrile production capacity is about 2.31 million tons / year, and the closed Orange plant accounts for about 17% of the total global adiponitrile production capacity in 2022. We believe that the closure of Orange adiponitrile production facilities has led to a contraction in overseas adiponitrile production capacity, bringing certain development opportunities to domestic adiponitrile manufacturers. With supply shrinking, the price of adiponitrile may rebound and provide support to the price of nylon 66 from the cost end. Good for the company's profits.
A number of projects are moving forward steadily to build the integration of the industrial chain. The company's annual output of 400000 tons of industrial hydrogen and ammonia project is in the construction period, and the company expects trial production in November 2023; the relocation and transformation of the key laboratory of the whole process of nylon engineering plastics has been basically completed, and the company is expected to complete it in December 2023; the core equipment of the polymerization plant quality improvement and efficiency project has been in place, and the company is expected to complete it in June 2024. We will speed up the construction of industrial chain projects with an annual output of 50,000 tons of adipic nitrile, 30,000 tons of 1,6 hexanediol, 20,000 tons of special nylon, and the first phase of the industrial upgrading project. The company strives to improve the operation system of customer-centered, market-oriented, sales as the leader, scientific research as the focus, quality as the foundation and service as the guarantee, which further highlights the advantages of the whole industry chain.
Investment suggestion: it is estimated that the operating income of the company from 2023 to 2025 will be 144.19, 166.88 and 18.285 billion yuan, respectively, and the net profit will be 2.37 million, 662 and 0.40 million, respectively, and the corresponding EPS will be 0.23, 0.63 and 0.90, respectively. The current stock price will correspond to PE multiples of 34.1X, 12.2x and 8.6x, respectively. We are based on the following three aspects: 1) as the macroeconomic stabilizes and the downstream gradually recovers, the company's PC products are expected to continue to grow, and the demand for nylon 66 series products is expected to pick up and improve the company's profitability. 2) after the nylon chemical industry supporting coal-to-hydrogen ammonia project, adiponitrile project and Longan Chemical 40000Nm3/h coke oven gas comprehensive utilization project are put into production, the company's raw material supply will be guaranteed and the procurement and production costs will be effectively controlled, giving full play to the collaborative advantages of the whole industry chain; 3) the acceleration of adiponitrile localization will be good for the company's nylon 66 business for a long time. 4) the closure of the Orange plant has reduced the overseas production capacity of adiponitrile, and the price of adiponitrile may rebound, providing support to the price of nylon 66 from the cost end. We are optimistic that the company's overall industrial chain layout in the nylon 66 industry and the company's new projects will bring growth, covering for the first time and giving a "buy" rating.
Risk tips: product price and macroeconomic fluctuation risk; raw material price fluctuation and supply risk; market competition aggravating risk; downstream demand is lower than expected; exchange rate fluctuation and other risks.