Incident Overview

The company publishes its 2023 annual report. In 2023, the company achieved operating income of 3.455 billion yuan, a year-on-year decrease of 1.78%; realized net profit of 304 million yuan, a year-on-year decrease of 40.96%, and realized net profit of 296 million yuan without return to mother, a year-on-year decrease of 41.39%; EPS of 0.75 yuan; and gross profit margin of 22.31%, a year-on-year decrease of 5.36 PCT. In the Q4 quarter of 2023, the company achieved operating income of 828 million yuan, up 0.91% year on year, down 14.06% month on month; net profit to mother was 45 million yuan, down 41.42% year on year, down 9.90% month on month, after deducting net profit of 45 million yuan year on year, down 35.90% year on year and 9.67% month on month.

Analytical judgment:

Revenue and profit declined year-on-year. The decline in product prices affected the company's operating income and net profit in 2023. The main reasons for the decline in the company's operating income and net profit in 2023 were the decline in the price of high-performance rubber products and the increase in bad debts on commercial acceptance notes received that have not yet expired. 1) In 2023, the company's high-performance rubber additives products achieved revenue of 2,077 billion yuan, down 9.06% year on year, accounting for 60.13% of revenue; gross profit margin was 22.99%, down 8.29PCT year on year; production and sales increased 14.4% and 21.72% year on year respectively. The decline in performance was mainly due to lower sales prices. According to the company's annual report data, the average sales price of high-performance rubber additives products in 2023 was 17,688 yuan/ton, down 25.29% from 23,675 yuan/ton in 2022. 2) In 2023, the company increased the amount of bad debt preparation for commercial acceptance bills. At the end of 2023, the carrying amount of the company's commercial acceptance bill portfolio was 105 million yuan, accounting for bad debt provisions of 0.27 million yuan, with an accrual ratio of 26.29%. 3) On the cost side, the company's sales expenses rate, management expense ratio, and R&D expenses rate were generally stable in 2023. The year-on-year increase in financial expenses was mainly due to a decrease in exchange earnings.

Efficient operation of existing production capacity, diversified layout of new construction projects

The company's current production capacity is fully operational, and the future investment of several projects under construction is expected to drive performance growth. In 2023, the company's main rubber additives product output is 226,000 tons, the design production capacity is 200,000 tons/year, and a project to recycle high-performance rubber additives and by-products with an annual output of 65,000 tons is under construction and is expected to be put into operation in 2024. In order to promote clean production, the company independently developed a “multi-effect evaporation+biochemical” treatment combination process, which effectively solved the problems of high salt and high COD treatment in rubber additive wastewater. As of the end of 2023, the company's projects under construction also included a rubber additive project with an annual output of 90,000 tons/year, an accelerator DZ production unit, a 10,000 tons/year rubber anti-scorching agent CTP production device, and an annual output of 40,000 tons of trichlorosilicon cogeneration 6,500 tons of silicon tetrachloride. The project progress was 46%, 83%, 47%, and 11%, respectively.

The convertible bond project has a rich product structure and seizes the development opportunities of silane coupling agents. In 2023, the company issued 650 million yuan of convertible bonds, mainly for the construction of 65,000 tons of high-performance rubber additives and by-product recycling projects with an annual output of 65,000 tons. The main products of the project are sulfur-containing silane coupling agents and aminosilane coupling agents. The by-products are propyltrichlorosilane and silicon tetrachloride. After completion, it will have a production capacity of 55,000 tons/year of silane coupling agents and 10,000 tons/year of by-products. The internal rate of return after project income tax is 19.3%, and the static payback period (including construction period) is 6.13 years. It is expected to achieve an average annual sales revenue of 813 million yuan, an average annual net profit of 107 million yuan, and an average gross profit ratio of 24.69% during the forecast period. Rubber processing is the largest downstream application of functional alkane. As a comprehensive rubber additive supplier with anti-scorching agents, accelerators, insoluble sulfur, etc. as core products, this fund-raising project will further enrich the company's product structure and optimize the industrial layout, help the company seize the development opportunities of silane coupling agents and create new profit growth points.

Investment advice

We have updated our profit forecast. We expect the company's revenue for 2024-2026 to be 40.57/45.52/5,039 billion yuan, respectively, net profit to mother of 3.62/4.56/513 million yuan, and EPS of 0.89/1.12/1.25 yuan, respectively. Corresponding to the closing price of 8.41 yuan on April 10, PE will be 9/8/7 times, respectively, maintaining a “buy” rating.

Risk warning

The risk of sharp fluctuations in raw material prices, and the risk that the construction and launch of new production capacity falls short of expectations