Event: The company released its 2023 annual report and 2024 quarterly report. In '23, we achieved revenue of 26.298 billion yuan, +1.60% year-on-year, and achieved net profit of 2,478 billion yuan to mother, or -12.85% year-on-year. 24Q1 achieved revenue of 6.657 billion yuan, +8%/+1% YoY, net profit to mother of 683 million yuan, and +8%/+24% YoY.
The industry boom was weak in '23, and the company's profitability was under pressure. The growth rate of domestic spandex production capacity in '23 hit a new high since 2016, with a production capacity of 1,239,500 tons, +13%. The trend of oversupply in the spandex industry continued. The average domestic spandex price in '23 was 31,866 yuan/ton, -10%; downstream demand in the adipic acid industry was weak, and the overall price of adipic acid showed a downward trend, and industry profit margins were compressed. The average price of adipic acid in '23 was 9549 yuan/ton, -4% YoY. The company's sales volume rose year on year in '23, with sales volume of chemical fiber/new chemical materials/basic chemical products +32%/+11%/+23% year over year, but due to falling prices and pressure on profitability, the company's overall gross margin/net margin in '23 was 15.35%/9.43%, -2.59/-1.55pct year on year.
24Q1 spreads were fixed month-on-month, and profitability improved. The average prices of spandex and adipic acid in the 24Q1 domestic market were 28715/9791 yuan/ton, respectively, -5.5%/+7.8% month-on-month. The average price of PTMEG as the main raw material was 16054 yuan/ton, -16.1% month-on-month. The spandex price spread was fixed month-on-month, and the company's Q1 performance increased at the same time. 24Q1 gross margin was 16.13%, -1.94/+3.70pct month-on-month, net margin was 10.25%, and the net margin was 10.25%, and +0.06/+1.95pct month-on-month.
Spandex production capacity continues to expand, and the leading position is stable. By the end of '23, the company had a production capacity of 325,000 tons of spandex, 1.355 million tons of adipic acid, and 520,000 tons of polyurethane stock solution. The company continues to promote new projects. The first phase of the 300,000 ton differentiated spandex project, 100,000 tons, was put into operation in April 2023, and the next 200,000 tons are expected to be completed and put into operation in 2025. At the end of 2023, the company announced that it will invest 5.02 billion yuan and 2.04 billion yuan respectively to build a 1.1 million ton natural gas integration project and a 120,000 ton PTMEG spandex industry chain deepening project. After completion, the project will enhance the company's industrial integration advantages and enhance overall profitability and resilience to risks.
Investment advice: The company's size advantage is remarkable. We expect the company's net profit to be 31.52/36.66/4.03 billion yuan in 24-26, corresponding PE of 12.8/11.0/10.1x, maintaining a “buy” rating.
Risk warning: raw material prices fluctuate, downstream demand falls short of expectations, capacity release falls short of expectations, etc.