Incident: 1) The company achieved revenue of 2,114 billion yuan in 2023, -13.39%; realized net profit to mother of 367 million yuan, or -33.75% year on year; realized net profit after deduction of 307 million yuan, or -44.67% year-on-year. Among them, Q4 achieved revenue of 549 million yuan, -9.07%/+2.55% year over year, and net profit to mother of 53 million yuan, or -21.5%/-26.9% year over month. 2) The company achieved revenue of 685 million yuan in 2024Q1, +35.4%/+24.8% year over year, and realized net profit of 105 million yuan, +83.4%/+100.0% year over year. 3) In 2023, the company plans to pay a cash dividend of 1.90 yuan (tax included) for every 10 shares, with a total cash dividend of 110 million yuan.

In terms of operating data: 1) Production and sales data: In 2023, the company's long-chain binary acid/bio-based polyamide products achieved revenue of 1,908/154 million yuan, respectively, -9.0%/-33.3%; achieved sales volume of 6.00/0.76 million tons, respectively, +2.2%/-31.3% year-on-year. During the reporting period, the company achieved certain results in developing the 40,000 ton sebacic acid production capacity market in Taiyuan, driving the production and sales of the long chain binary acid series to achieve year-on-year growth, but revenue was still hampered by falling prices. Since bio-based polyamide products are in the commercial promotion stage, downstream customer supporting processes and equipment improvements and customer certification processes all require a certain amount of time, their production capacity utilization rate was low during the reporting period, and production and sales volume declined compared to last year. Judging from the data for the first quarter, with the gradual recovery in demand for the company's binary acid and other products, the same and month-on-month recovery in revenue is quite obvious. 2) Profitability: In 2023, the company's long-chain binary acid/bio-based polyamide products achieved gross profit margins of 37.86%/-17.99%, respectively, compared with -2.83/-10.65PCT. The decline in gross margin of long chain binary acid was mainly affected by product restructuring. Sebacic acid's share of sales during the promotion period increased, affecting the overall gross profit margin. After excluding sebacic acid, the gross margin of the company's biomethod long-chain diacid products remained stable compared to 2022. The gross margin of bio-based polyamide products has declined significantly, which means that the capacity utilization rate is low, and the cost sharing per unit product has increased.

In terms of financial data: The company's total expenses for the four periods in 2023 were 200 million yuan, a significant increase compared with 126 million yuan in 2022. It was mainly due to large fluctuations in financial expenses (from revenue of 295 million yuan in 2022 to revenue of 211 million yuan in 2023), which was a year-on-year decline in the company's exchange earnings due to fluctuations in the US dollar.

China Merchants Group's shareholding is expected to form an efficient collaboration with the company's bio-based polyamide business. The company has developed bio-based polyamide composite processing technology with high glass fiber content, which can replace non-recyclable thermosetting materials. It also competes with steel and aluminum with advantages such as weight reduction, low carbon and environmental protection, and has obvious cost performance advantages in various application scenarios. Currently, the company has continued to promote bio-based polyamide composites in the fields of transportation logistics, building decoration, new energy equipment, etc., and as China Merchants Group invests in cash, we are optimistic about closely collaborating with the company to accelerate the application development of the company's products and help the company obtain more resources to develop the synthetic biology industry.

Investment advice: Based on the company's latest performance, we adjusted the company's previous profit forecast for 2024-2025 from 776/1.15 billion yuan to 552/702 million yuan, and added the net profit forecast for 2026 of 874 million yuan, corresponding to the current PE of 51.9x/40.8x/32.8x, respectively. The company's bio-based polyamide products are currently being promoted in various fields such as spinning, engineering plastics, and large applications. We are hopeful that with the continuous launch and implementation of the company's many new brands, it is expected to open up a wider market space. In line with the country's current emphasis on the biomantry industry, we refer to the historical valuation center to give the company a certain valuation premium, give the target PE 65 times in 2024, corresponding to the target price of 61.75 yuan, and maintain the “strong promotion” rating.

Risk warning: Project progress falls short of expectations; prices of raw materials fluctuate greatly; changes in safety and environmental protection policies.