Incidents:

On April 16, 2024, Huitian New Materials released its 2023 annual report: in 2023, the company achieved operating income of 3,902 billion yuan, an increase of 5.05%; realized net profit attributable to shareholders of listed companies of 299 million yuan, an increase of 2.41% over the previous year; and the weighted average return on net assets was 10.63%, down 1.75 percentage points from the previous year. The gross profit margin on sales was 22.82%, down 0.67 percentage points from the previous year; the net profit margin was 7.64%, down 0.18 percentage points from the previous year.

Among them, the company achieved revenue of 814 million yuan in 2023Q4, -1.95% YoY, -19.10%; realized net profit to mother of 0.03 billion yuan, -90.56% YoY, -95.91% YoY; ROE was 0.10%, down 1.09 percentage points year on year and 2.43 percentage points month-on-month. The gross profit margin on sales was 18.78%, down 5.41 percentage points year on year and 1.75 percentage points month on month; net sales margin was 0.37%, down 3.31 percentage points year on year, down 6.79 percentage points month on month.

Investment highlights:

Reduced raw material prices dragged down, and the company's performance increased slightly month-on-month

In 2023, the company achieved operating income of 3,902 billion yuan, an increase of 5.05% over the previous year; realized net profit attributable to shareholders of listed companies of 299 million yuan, an increase of 2.41% over the previous year. With the increase in demand for downstream photovoltaics, new energy vehicles, electronic appliances and other terminals and the release of production capacity, the company's product sales have increased dramatically. In 2023, the company sold 202,200 tons of adhesive, +46.05% year-on-year.

PV silicone, the dominant product, continues to maintain its leading position, but due to falling prices of upstream raw materials and increased competition in the industry, PV silicone only achieved sales revenue of 1,586 billion yuan in the context of a sharp increase in sales volume, +16.07% over the same period last year. Meanwhile, the overall gross margin of the renewable energy sector declined by 2.7% to 19.1%. With the continuous expansion of new markets and new customers, the company's products in the field of transportation achieved a significant increase of 28.03% in sales revenue, reaching 724 million yuan. In terms of period expenses, the company's sales/management/ financial expenses ratio in 2023 was 4.76%/9.75%/0.76%, respectively, -0.09/-0.15/+0.88pct. Among them, the large increase in financial expenses was mainly due to an increase in current interest expenses and a decrease in exchange earnings.

According to Baichuan Yingfu, 2024Q1, the average price of organic silicone upstream silicone DMC is 15593.33 yuan/ton, +8.32% month-on-month. Looking ahead to the first quarter, with the steady recovery of silicone DMC, the company's profits may be recovered to some extent.

The downstream is blooming more, and the amount of electronic glue is expected to be released

As a leading enterprise in the domestic engineering adhesives industry, the company continues to cultivate leading customers in the industry, while optimizing production capacity layout at home and abroad, and has achieved outstanding performance in various fields. In 2023, the company completed and put into operation a 30,000 tons of photovoltaic silicone sealant production line, 10,000 tons of polyurethane adhesive production line for lithium batteries, 15,000 tons of lithium battery electrode adhesive production line, 36 million square meter solar cell back film production line, and 39,300 tons of electronic adhesive intelligent production line. With the release of production capacity and continuous market expansion, the downstream of the company has blossomed more. In particular, in the electronics sector, as one of the main tracks where the company has invested key resources in recent years, after the completion of the Guangzhou Huitian Communications Electronics New Material Expansion Project, the production capacity of this sector will increase dramatically from 17,000 tons to 39,300 tons. As downstream consumer electronics, smart packaging and other fields pick up, the sector is expected to achieve significant growth.

The maximum amount completed the repurchase, demonstrating the company's confidence in long-term development

On March 20, 2023, the company announced that it plans to use its own capital of not less than RMB 100 million and no more than RMB 200 million to repurchase RMB common shares already issued by the company for employee stock ownership plans or equity incentives. As of March 20, 2024, the company has repurchased 19.07 million shares, with a transaction amount of 200 million yuan, and completed the repurchase plan at the maximum amount. The implementation of the repurchase plan shows confidence in the company's long-term development. At the same time, share buybacks for employee stock ownership plans or equity incentives will further establish and improve the company's long-term and effective incentive and restraint mechanism, fully mobilize employees' enthusiasm and creativity, attract and retain outstanding managers and business backbone, effectively integrate the interests of the company, shareholders and employees, and achieve the company's medium- to long-term development goals.

Profit forecasts and investment ratings

Based on the 2023 performance, we adjusted the company's profit forecast. We expect the company's revenue for 2024-2026 to be 46.37 billion yuan, 52.14 billion yuan, and 6.256 billion yuan, respectively, and net profit to mother of 3.77, 4.17, and 554 million yuan, respectively. The corresponding PE is 13.81, 12.46, and 9.39 times, respectively. Considering that the company is a leader in engineering adhesives, and as production capacity continues to be released, performance is expected to continue to grow and maintain the company's “buy” rating.

Risk warning

Risk of falling demand for products due to macroeconomic fluctuations; sharp drop in product prices; risk of new capacity expansion falling short of expectations; risk of increased industry competition; risk of sharp decline in raw materials