2023 full-year results fall short of our expectations
The company announced full-year results for 2023: the company achieved operating income of 15.303 billion yuan, a year-on-year decrease of 27.90%; net profit attributable to shareholders of listed companies was 1,534 billion yuan, a year-on-year decrease of 48.92%; net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss was 1,629 billion yuan, a year-on-year decrease of 41.13%. In 2023, dye/additives/intermediates achieved revenue of 75.2/9.3/3.14 billion yuan (YoY -13.3%/-6.9%/-21.0%), gross margin of 27.8%/23.8%/32.0% (YoY 4.07/+0.06/-14.55ppts), and sales volume of 22.2/5.6/9.1 million tons (YoY -2.0%/-8.1%/+3.7%), respectively, with average sales prices of 3.4/1.7/34,000 yuan/ton, respectively ( YoY -11.5%/+1.3%/-23.8%). The company plans to pay a dividend of 0.25 yuan/share. The dye and intermediate industry is fiercely competitive, and the annual performance is lower than our expectations. However, the company's sales of dyes and intermediates are steady, and its leading position is still stable.
Development trends
Domestic disperse dye prices are close to break-even. Looking at the subsidiary situation, Zhejiang Longsheng Dye Chemical Co., Ltd.'s revenue for the full year of 2023 was 4.06 billion yuan (YoY -23.9%), and net profit was 75.38 million yuan, turning a year-on-year loss into a profit. Desida's revenue for the full year of 2023 was 5.18 billion yuan (YoY -14.3%), and net profit was 530 million yuan (YoY -33.4%). Since the second half of 2023, dye prices have continued to decline, and the company's domestic disperse dye business contributed limited in the second half of the year. According to Zhuochuang information data, as of April 19, 2024, disperse dyes (disperse black ECT 300%) were reported at 17,500 yuan/ton, down 2.8% since the beginning of the year. Reactive dyes (reactive black WNN 150%) closed at 20,000 yuan/ton, down 2.4% since the beginning of the year. We believe that the current price of disperse dyes in the company is close to break-even. Disperse dye companies that have not set up an intermediate business have actually lost a single ton, and in an environment where profits are under pressure, the pace of investing in new production capacity in the dye industry is expected to slow down. The company has an annual production capacity of 119,500 tons of dye intermediates. Sumitomo Chemical's main competitor for resorcinol is Sumitomo Chemical. We believe that although the dye intermediate industry has added a small amount of new production capacity, the company is expected to consolidate its leading position in dye intermediates through a more complete industrial chain.
The real estate project is expected to gradually deliver results. The company's Huaxing New Town project began in February 2022. The company expects to complete it in September 2027. Within 2023, the company completed the casting and construction of the large floor of the 320-meter main tower office building to the first floor, and completed the 150-meter super-high-rise residential project schedule. The opening of the Wanshang Huikan started collecting customers, and the name of the case “Bomao Plaza” was released to the public. We believe that the company's real estate projects are mainly located in the core locations of Tier 1 and 2 cities, supported by the demand side, and are expected to gradually deliver results.
Profit forecasting and valuation
The dye industry is waiting for a reversal. We lowered our 2024 net profit forecast by 16.5% to 1,969 billion yuan, and introduced a new 2025 net profit forecast of 2,391 billion yuan. The current stock price corresponds to 2024/2025 14.9/12.2 price-earnings ratio. The company's leading position in the dye and intermediates business remains stable, and the real estate business may gradually deliver results. We maintain a target price of 10.70 yuan, corresponding to a price-earnings ratio of 17.7/14.6 times in 2024/2025, and maintain an outperforming industry rating. There is 19.0% upside compared to the current stock price.
risks
Demand for dyes fell short of expectations, dye/intermediate production capacity expanded drastically, and the risk of a sharp decline in the market