Incident: The company released its 2024 quarterly report. During the reporting period, it achieved operating income of 714 million yuan, a year-on-year increase of 14.41%, and net profit of 153 million yuan, an increase of 57.77% year-on-year, after deducting non-net profit of 146 million yuan, an increase of 65.96% over the previous year. The first quarter was the traditional low season for the company, and the performance exceeded market expectations.
The first quarter showed a good development trend and actively explored the compound agent market. The company's comprehensive gross profit margin in the first quarter of 2024 was 35.5%, up 4.4 pct from the previous year. Although the first quarter was a traditional low season and the cost level was high, the company's revenue in the first quarter of 2024 increased 7.7% month-on-month, and the profit level remained basically flat month-on-month, showing a good development trend. In 2023, the company continued to obtain lower dosage and more energy-efficient bench test reports issued by authoritative third-party testing agencies, which took a solid step for the company to achieve a strategic transformation from low to medium to high levels of single agents and compound agents, which helped accelerate the company's entry into the mainstream market. The company is steadily promoting compound products, increasing development and entry work for core customers, and speeding up international authoritative certification of compound products and internal customer evaluation and testing. At present, the company has mastered the formulation process for CI-4 and CK-4 diesel engine oil compounds and SN and SP gasoline engine oil compounds, and has passed the bench tests of authoritative foreign parties to further meet the needs of different customers.
The global market space for lubricant additives is large, industry barriers are high, and the competitive pattern is good. According to statistics from Crane and the Shanghai Lubricants Industry Association, it is estimated that in 2023, China's demand for lubricant additives will increase to 1.12 million tons, global demand will increase to 5.34 million tons, the market size is about 18.5 billion US dollars, and the company has broad scope for future development. Lubricant additives have high technical barriers and market entry barriers. There are many types of product segments, and compound formulations are very different. They need to pass US API certification, technical indicators and product quality requirements are high; large lubricant companies strictly review additive suppliers and conduct long-term strict tests. They have very strict standards and customized requirements, and once they enter, they tend to cooperate for a long time. The competitive pattern in the global lubricant additive industry is good. The four major European and American multinational companies have a global market share of 85%. The company's global market share is expected to be 2% to 3% in 2023, and there is still plenty of room for improvement in the future.
The transformation of compound agents has entered a harvest period, and production continues to expand to seize global market share. The company's overall technical level of lubricant additives is leading domestically, and some technologies are leading internationally. The transformation of compounds has already entered the harvest period. Currently, China's lubricant additive industry is still dominated by foreign investment. It is particularly important to achieve domestic substitution, and there is plenty of room for import substitution. By the end of 2023, the company has a single agent production capacity of more than 200,000 tons/year, and the Xinxiang base has a production capacity of 550,000 tons/year, of which 90,000 tons/year production capacity construction has accelerated investment. In order to make full use of the scale effects and synergy effects generated by the lubricant additive series product project with an annual output of 460,000 tons, the two projects are expected to be completed by the end of 2025. The company's subsidiary Jinzhou Haorunda's 100,000 tons/year lubricant additive project is under construction, and it is expected that a small amount of production capacity will be released in 2024. The company will gradually release new production capacity according to market development and customer needs, continue to seize the global lubricant additive market share, and greatly enhance future growth space.
Maintain a “Highly Recommended” investment rating. The company's net profit for 2024-2026 is estimated to be 801 million yuan, 999 million yuan, and 1,196 million yuan, EPS is 2.75, 3.40, and 4.11 yuan respectively. The current stock price corresponds to PE of 16, 13, and 11 times, respectively, maintaining a “highly recommended” investment rating.
Risk warning: raw material costs are rising, downstream demand is falling short of expectations, and the commissioning of new projects falls short of expectations.