Key investment points:

A leading lubricant additive company with technical and production capacity advantages. The company is the first A-share listed company in the lubricant additives industry. The company produces a complete range of products, covering a complete range of mainstream additives. At present, the company's annual production capacity of lubricant additives exceeds 0.2 million tons, and the production capacity under construction is 0.55 million tons. The production capacity is stable in the first tier in China. The company has mastered CI-4 grade and CK-4 diesel engine oil compound formulation process, SN grade and SP gasoline engine oil compound formulation process and other mainstream compound oil formulation processes. At the same time, the company continues to explore self-production of core raw materials. Currently, the company has production capacity for important raw materials such as dodecylphenol, linear long-chain alkyl benzene, and 3,5-methyl ester, which effectively reduces production costs. With technology, products, production capacity and cost advantages, the company has become a leading domestic supplier of lubricant additives and has gradually established influence in the international market.

The global market for lubricant additives exceeds 100 billion dollars, and there is broad scope for domestic alternatives. According to global Kline & Co (Kline & Co) and the Shanghai Lubricants Industry Association, the global lubricant additives market will increase to 19.5 billion US dollars in 2023. China is the second largest market for lubricant additives in the world, accounting for about 16.6%. Due to high barriers in the lubricant industry, the four major international lubricant additive companies currently control about 85% of the market share. As the technical level continues to improve and the scale of production continues to expand, domestic manufacturers have gradually replaced domestic products, starting with the production of low- and middle-end compound products, and have made breakthroughs in high-end compound agents.

Lubricant additive certification is strict, and the company continues to promote API certification. API certification is one of the widely recognized and applied certification standards around the world. The API certification cycle is long, expensive, and requires high technical accumulation. The company's CI-4, CK-4, SN, and SP grade compounds have passed the bench tests of authoritative foreign third parties, and the development of lubricant additive products with the latest specification ILSACGF-7 for compound gasoline engine oil has been completed. Continued bench testing and successful development of high-end products showed the company's strong technical strength, taking an important step for the company to further transform into high-end composite products and laying a good foundation for the company's further development of overseas markets.

Investment advice: Considering the basic situation of the industry and the company's growth, the company is expected to achieve operating income of 3.299/3.867/4.432 billion yuan in 2024-2026, net profit to mother of 0.707/0.833/1.021 billion yuan, respectively. The PE corresponding to the current stock price is 18.48/15.68/12.80 times. According to the average price-earnings ratio of listed companies related to the lubricant additive industry, considering that the company is seizing the opportunities of the international supply chain system facing reconstruction and accelerated domestic import substitution, actively increasing its market share, and there is plenty of room for future growth, we maintain a “shareholding rating”.

Risk warning: risk of not successfully passing certification for compound products; risk of raw material prices and supply; risk of overseas market expansion; risk of international policy changes; risk of exchange rate risk.