Description of the event
The company released its first quarterly report for 2023. Q1 achieved revenue of 620 million yuan (+57.5% YoY, -37.9% YoY), net profit attributable to 100 million yuan (+87.9% YoY, -56.9% YoY), and deducted non-net profit of 90 million yuan (+291.1% YoY, -61.2% YoY).
Incident comments
Q1 revenue performance increased, and there was a decrease from month to month. Q1's revenue and performance increased by 57.5% and 87.9% year-on-year, respectively, mainly due to the year-on-year increase in sales of the company's lubricant additive products; the month-on-month decline was 37.9% and 56.9%, respectively, mainly due to the short-term decline in revenue performance due to inventory accumulation by some downstream customers in the second half of 2022. The company's Q1 gross margin was 31.1% (+6.9 pct, -3.2 pct month-on-month). The year-on-year increase was mainly due to the relatively high share of compound agents with the company's current higher profit level. The Q1 company's period expense ratio was 14.3% (y-1.1 pct), with sales, management, finance, and R&D expense rates changing -1.1, -0.2, +1.4, and -1.2 pct, respectively.
Production capacity is growing rapidly, and there is a continuous transition to compound agents. In terms of production capacity, by the end of 2022, the company already had an annual production capacity of 170,000 tons of lubricant additives, an increase of 69,000 tons/year over 2021. Furthermore, the company's annual production schedule of 150,000 tons of lubricant additive series products reached 24.2% by the end of 2022. The production capacity of the first phase of the project of 60,000 tons was put into production and use in the third quarter of 2022, partially meeting the company's production capacity needs. As the company's production capacity continues to advance and the transition to compound agents continues, it is expected that revenue and performance will continue to grow significantly.
Continue to promote API certification and increase research and development of special single agents and innovative single agents. In 2022, APISP5W-30 gasoline engine oil modulated with RF6188, a gasoline engine oil compound product developed by the company, passed all engine bench tests. SP is the highest quality grade among the current gasoline engine oil specifications of the American Petroleum Institute and can better meet China's six (b) emission standards. Continued bench testing has demonstrated the rich expertise and strong R&D capabilities of the company's technical team, proved that the performance and quality levels of the company's products are high, which helps to further enhance the company's core competitiveness. The company allocates high-quality resources, actively connects with customers, accelerates international authoritative certification of compound products and internal evaluation and testing work for customers, and has made breakthroughs in core customer entry. As of 2022, the company's compound agent revenue accounted for 66.4%, and the transformation and upgrading have been very effective.
The company established subsidiaries to improve the upstream and downstream industrial chains. The company established Xinxiang Ruifeng Hongtai Chemical Co., Ltd. in April 2022, which is mainly oriented towards the company's upstream integration. The company mainly produces alkyl phenols, alkyl benzene and heavy alkyl benzenesulfonic acid as raw materials for cleaning agents. After the company is put into operation, it can not only supply the company with core raw materials for the company's department, ensure supply safety and quality stability on these raw materials, and further enhance the company's core competitiveness.
Maintain a “buy” rating. The company is a leading supplier of lubricant additives in China and the world's leading supplier of carbonless paper colorants. It has a complete range of single agents and R&D and production capacity for key raw materials. In 2013, it began to enter downstream into the compound agent business with higher added value. Product technology is leading the country, and compound agents continue to pass bench tests by authoritative foreign third parties. As the company's production capacity continues to be released, the company is expected to usher in rapid development. The company's net profit from 2023-2025 is estimated to be 840 million yuan, 1.29 billion yuan and 1.68 billion yuan respectively.
Risk warning
1. The price of upstream raw materials is rising;
2. Downstream demand fell short of expectations; the commissioning of new projects fell short of expectations.