Incident: Recently, Chengcheng Co., Ltd. released its 2023 Annual Report and 2024 Quarterly Report. The company achieved operating income of 1,810 billion yuan in 2023, an increase of 3.66% over the previous year, and realized net profit of 413 million yuan, an increase of 8.42% over the previous year. In the first quarter of 2024, we achieved operating income of $523 million, up 25.90% year on year, up 7.18% month on month, and realized net profit of 122 million yuan, up 45.64% year on year and 13.89% month on month.
Comment:
Increased sales supported revenue growth, and profitability remained stable. (1) Production capacity was released, and sales volume continued to grow. In 2023, the company sold 297,900 tons, up 19.04% year on year, making the largest sales volume in the same period in history; 2024Q1 sold 88,900 tons, up 33.48% year on year and 9.85% month on month, setting a record high in a single quarter. We believe that the increase in sales volume is mainly due to the release of the company's production capacity and active development of domestic and foreign markets. In the future, with the 100,000 tons of production capacity under construction being put into production, the company's sales volume is expected to continue to grow, laying the foundation for performance growth. (2) The unit price of the product fluctuates with the price of raw materials, but the gross profit margin and net interest rate are relatively stable. According to the company announcement, the unit price of 2024Q1's products fell 0.48% month-on-month and 4.43% year-on-year. We believe this is mainly due to the decline in raw material prices. The company's net interest rate has remained above 20% for 5 consecutive quarters since 2023Q1, and its profitability is relatively stable.
Strong tire production is compounded by increased penetration rate of new energy vehicles, and demand for silica is improving. (1) China's tire operating rate has recovered significantly since 2023, which is expected to continue to drive demand for white carbon black. In 2023, the operating rate of domestic semi-steel tires was 69.20%, an increase of 9.52 pct over the previous year, and the operating rate of all-steel tires was 60.32%, an increase of 8.22 pcts over the previous year, and remained relatively high in 2024. (2) New energy vehicles, energy saving and environmental protection concepts are expected to drive demand for highly dispersed white carbon black in the long term. In 2023, sales of new energy vehicles in China reached 9.495 million units, up 37.87% year on year, with a penetration rate of 31.55%. It is expected that the future will continue to grow along with policy incentives and abundant models. As a special supporting material for green tires, highly dispersed silicon dioxide can effectively reduce rolling resistance, achieve energy efficiency, and play an important role in improving the battery life of electric vehicles. We believe it is expected to fully benefit from the high popularity of new energy vehicles.
The company actively lays out new production capacity and new products, and is expected to grow steadily in the future. (1) In terms of production capacity: The company has three domestic production bases in Wuxi, Jiangsu, Fengyang in Anhui, and Shaxian in Fujian. It has built an overseas production base in Thailand, with a total production capacity of 330,000 tons and a production capacity under construction of 100,000 tons. The total production capacity ranks third in the world. We believe that the increase in production capacity will help the company further expand its global market share and achieve performance growth. (2) Product aspect: As of the 2023 annual report, the company's silica products for oral care and silica for silicone rubber have achieved small-batch commercial supply, and are actively promoting the commercialization of the silica microsphere project incubated by the company. We believe that the company's product range continues to be rich, and the market space is still expected to expand further.
Profit forecast and investment rating: We expect the company's 2024-2026 revenue to reach 1.60 billion yuan, 2.354 billion yuan, and 2,521 billion yuan respectively, up 19.3%, 9.0%, and 7.1% year-on-year. Net profit attributable to shareholders of the parent company will reach 502 million yuan, 577 million yuan and 647 million yuan respectively, up 21.6%, 15.0%, 12.2% year-on-year, and the diluted EPS in 2024-2026 will reach 1.20 yuan, 1.38 yuan and 1.55 yuan respectively. The current stock price The corresponding 2024PE is 12.77x, maintaining the “buy” rating.
Risk factors: Production capacity construction falls short of expectations, downstream demand has dropped sharply, raw material prices have risen sharply