Matters:
The company released the 2023 annual report and the 2024 quarterly report. The full year of 2023 achieved revenue of 2,944 billion yuan, +17.74% year over year; realized net profit of 407 million yuan, +36.37% year over year; and realized net profit of 386 million yuan without return to mother, +82.29% year over year. In the first quarter of 2024, the company achieved revenue of 782 million yuan, +17.57%, and 4.61% month-on-month; realized net profit of 144 million yuan, +74.29% year-on-year, +155.07% month-on-month; realized net profit of 85 million yuan, +4.05% year-on-year and +38.53% month-on-month.
Commentary:
Rubber additives recovered downstream, and the company's sales volume and gross margin increased simultaneously. In 2023, the tire industry got out of the high inventory situation and ushered in an upward trend in the industry. In 2023, domestic tire volume increased 22.38% year on year, and export tire volume increased 11.56% year on year. The recovery in the tire industry has led to an increase in demand for rubber additives. In 2023, the company's rubber additives business revenue was 2.280 billion yuan, up 9.08% year on year; sales volume was 141,100 tons, up 15.18% year on year; gross profit margin was 25.19%, up 1.33% year on year.
The semiconductor photoresist business bucked the trend, and ArF products have partially passed customer certification. The global photoresist market fell 10.95% year on year in 2023, but the company's semiconductor photoresist business revenue bucked the trend and increased by 14.13% year on year to 210 million yuan, mainly due to the continued release of mature products and the introduction and replacement of new products.
The company's market share of KrF photoresists continues to rise, and some products have become the number one supplier in the production line of leading domestic fabs. The company has completed the development of some models of ArF photoresists. Some of these ArF photoresists have passed product certification for downstream customers in the first quarter of 2024, and are preparing to begin production in the second quarter. Demand for semiconductors in mainland China is strong. According to SEMI, sales of semiconductor materials in China increased 0.9% year-on-year in 2023, making it the only market in all regions to achieve growth. According to SIA, China's semiconductor sales achieved a year-on-year growth rate of 26.6%/28.8%/27.4% from January to January 2024. Good demand in the domestic semiconductor market is conducive to the replacement and expansion of the company's products. In 2023, the subsidiary Beixu Electronics' display panel photoresist business achieved revenue of 261 million yuan, an increase of 22.8% over the previous year. The company continued and actively promoted the introduction and testing of leading panel customers, and achieved mass production sales to 6 new customers in 2023.
The production capacity of degradable plastics is gradually being released, waiting for the industry to break out of the bottom. In 2023, the company sold 0.94 million tons of degradable plastics, achieving revenue of 100.5 million yuan, an increase of 492.10% over the previous year. Currently, the low price, price difference, and operating rate of degradable plastics are low. According to Baichuan Yingfu data, PBAT manufacturers raised prices and reduced losses in the past two months, and prices continued to rise slightly. The operating rate in April increased 12.51% to 26.68% month-on-month. We judge that under long-term losses, manufacturers in the industry are expected to gradually raise prices, and we expect the industry to break out of the bottom.
Investment advice: The company is a leading domestic manufacturer of rubber additives and photoresists. The reversal of the bottom of the tire industry has driven the growth of the rubber additives business. Companies in the photoresist field continue to carry out R&D and domestic substitution, and continue to enter new customer production lines. We expect the company to achieve net profit of 471/55I/653 million yuan in 2024-2026, with year-on-year growth rates of +15.8%/+18.2%/+17.3%, respectively, corresponding PE of 36/30/26 times. Referring to comparable company valuations and the company's historical valuation situation, 42x P/E for 2024 was given, corresponding to a target price of 33.00 yuan, maintaining the “recommended” rating.
Risk warning: The increase in the photoresist business falls short of expectations; raw material prices fluctuate; and the degradable plastics industry continues to be sluggish.