Revenue in 2023 was +19.4% year-on-year, and PET product profits have a lot of room to improve

In 2023, the company achieved revenue/net profit of 24.55/ 196 million yuan, +19.4%/-15.2% year-on-year; the year-on-year increase in the company's revenue was mainly due to the increase in revenue contributions from diversified product lines, and the sharp year-on-year decline in net profit to the mother was mainly due to the fact that the gross margin of PET products was only 2.68%. In 2023, the company's DPS was 0.15 yuan/share, with a dividend ratio of 14.4%. By lowering the company's finished product frame, recycled plastic particle revenue forecast, and PET product business gross margin forecast, we adjusted the company's net profit to mother for 2024-2026 to 225/2.48/284 million yuan (3.52/4.29/100 million yuan). According to comparable company Wind, the average value of 24E PE is 14.2x. Considering that there is plenty of room for profit margin improvement in the company's PET business and that new overseas production capacity is expected to be released one after another, the company was given 22x 24E PE with a target price of 26.38 yuan (previous value: 26.77 yuan) to “increase holdings.”

PET product revenue was +227.48% year-on-year, but there is still plenty of room for improvement in gross margin by product. In 2023, the company's revenue of finished frames/lines/particles/PET products/environmental protection equipment was +2.62%/+8.2%/+227.48%/-12.6%, respectively, to 10.55/6.96/3.92/2.61 billion yuan. At the gross margin level, in 2023, the gross margins of the company's finished frames/lines/particles/PET products/environmental protection equipment were 34.05%/30.46%/6.36%/2.68%/61.4%, respectively, +1.35/+3.72/-5.58/+1.78/+6.43 percentage points compared with the previous year. The gross margin of PET products in 2023 is significantly lower than the company's other businesses. Considering that production capacity is still climbing, we believe that the gross margin of PET products is expected to increase on the basis of the company's subsequent recycling network system construction and optimization, lean manufacturing process improvement, and establishment of global marketing channels.

Vietnam's Inke Thanh Hwa (Phase II) project announced that capacity expansion continues to drive Vietnam's Inke Thanh Hwa (Phase I) finished product frame project to achieve revenue of 142 million yuan in 2023, an increase of 411.25% over the previous year. On March 21, 2024, the company announced an investment in the construction of Vietnam's Yingke Thanh Hoa (Phase II) project. The total investment of the project is about 60 million US dollars, and the construction period is 24 months. After completion, the project will have an annual production capacity of 24 sets (sets) of various types of environmental protection machinery, 30,000 tons of recycled plastic particles, 45,000 tons of decorative building materials, and 22.8 million pieces of high-end decorative frames. At the same time, the company also has a production capacity of 100,000 tons/year of recycled PET. In the future, on the basis of consolidating PS and PET plastic recycling and utilization advantages, the company will vertically expand the field of recycling of various plastics such as PE, PP, HDPE, etc., and horizontally to the field of recycling multi-material resources, thereby enhancing the company's competitiveness and profitability.

The target price is 26.38 yuan, maintaining the “gain” rating

We expect the company's 2024-2026 net profit of 2.25/2.48/284 million yuan, corresponding to EPS of 1.20/1.32/1.51 yuan. The company will be given 22x 24E PE with a target price of 26.38 yuan, maintaining the “gain” rating.

Risk warning: the risk of overseas sales revenue being relatively high, the risk of international supply of raw materials, the risk of changes in plastic recycling policies, and the construction progress of fund-raising projects falling short of expectations.