Revenue from heat-resistant glass recovered under pressure due to rising costs. China Borosilicate Pharmaceutical Glass Accelerated Layout Company released the 2023 Annual Report and 2024 First Quarter Report. In 2023, it achieved revenue of 947 million yuan, +15.25% year on year, net profit of 66 million yuan, -43.49% year on year, net profit without return to mother of 53 million yuan, or -43.33% year on year; of these, 2023Q4 achieved revenue of 256 million yuan, +11.65% month-on-month, net profit of 0.10 million yuan. 100 million yuan, -16.67% month-on-month. 2024Q1 achieved revenue of 267 million yuan, +18.99% year-on-year, net profit of 25 million yuan, +8.22% year-on-year, and net profit after deducting non-return to mother of 0.22 million yuan, +9.61% year-on-year. As controlled bottles and heat-resistant glass projects were put into operation one after another, the company's revenue grew rapidly. However, considering that the review process related to molded bottles was lower than expected, we lowered the 2024-2025 profit forecast and added the 2026 profit forecast. We expect to achieve net profit of 1.43/1.57/174 million yuan in 2024-2026 (the value before 2024-2025 was 36/452 million yuan), +115.2%/+10.6%/+11.0% year-on-year; EPS was 0.61/0.68/0.75 yuan, respectively, corresponding to the current stock price. PE is 24.3/22.0/19.8 times. As the review related to borosilicate molded bottles is promoted and the consistency evaluation promotes the penetration of borosilicate, the company's medicinal glass is expected to accelerate its release, and the increase in performance can be expected. Maintain a “buy” rating.
Raw material prices are rising, and gross margins are under pressure
By product, the company achieved revenue of 518/406 million yuan for heat-resistant glass products/pharmaceutical glass tube products in 2023, +24.86%/+15.27% year on year, accounting for 54.72%/42.85% of revenue respectively, and the same rate of +4.21 pct/ year on year respectively. The gross margin was 13.13%/23.19%, and -6.86pct/-1.63pct, respectively. The company's comprehensive gross profit margin was 17.44%, -4.65pct year over year. We believe that the main reason for the year-on-year decline in the company's gross margin: (1) the sales unit price of pharmaceutical glass continues to decrease under the collection trend; (2) the prices of borax and boric acid, the raw materials for the company's production of high borosilicate heat-resistant glass products, have increased dramatically and are at historic highs, and the electricity and natural gas prices required for production are also at a high level. 2024Q1's gross profit margin was 20.72%, +0.99pct year over year. The company's expense ratio for the 2023 period was 10.83%, +2.58pct year on year, and the sales/management/ financial/ R&D expenses ratio was 4.17%/2.98%/0.51%/3.18%, respectively, +1.07pct/-0.03pct/+1.52pct, respectively. The cost rate for the 2024Q1 period was 10.43%, +1.39pct, and the sales/management/finance/R&D expenses ratio was 3.75%/2.46%/1.61%/2.61%, respectively, +0.43pct/-0.24pct/+1.68pct/ -0.47pct, respectively.
Production expansion+related review promotion, pharmaceutical glass performance can be expected to increase
The consistency evaluation promoted the conversion of low borosilicate pharmaceutical glass to medium borosilicate pharmaceutical glass, and the high growth rate on the racetrack was highlighted. At the same time, the company's borosilicate molded bottle project is expected to enter the production period, which is expected to bring new performance growth points.
Risk warning: The efficiency of the new ignition capacity fell short of expectations, the rise in raw material costs exceeded expectations, and the recovery in overseas demand fell short of expectations.