TAIHUA NEW MATERIAL(603055)1H23 EARNINGS REVIEW：2Q23 RECURRING ANP +16% YOY; WAITING FOR NEW PRODUCTION CAPACITIES TO BOOST GROWTH

For 1H23, Taihua posted revenue of Rmb970mn (+2.67% YoY) and attributable net profit (ANP)/recurring ANP of Rmb183mn/123mn (-23.5%/-28.1% YoY). In 2Q23 alone, the Company's gross profit margin (GPM) improved by 1ppt QoQ, and it recurring ANP resumed positive growth to rise by 15.9% YoY to Rmb94mn in the quarter. CCFEI.com data show that the operating rates and product prices of the nylon sector have rebounded to some extent in 2H23. This, coupled with possibly gradual recovery of consumer demand in the downstream, may further boost the sector's prosperity. From a long-term perspective, considering steady progress in the Company's Huai'an project within the year and the gradual inauguration of nylon 66 and chemical-recycled nylon production capacities, we expect that the new production capacities will underpin Taihua's future earnings growth and reiterate the "BUY" rating.
Revenue: QoQ improvement in 2Q23 revenue growth, and 1H23 revenue of Rmb970mn (+2.67% YoY).
In its 2023 interim report, Taihua posted revenue of Rmb2,197mn (+7.24% YoY), including 2Q23 revenue of Rmb1,226mn (+11.16% YoY, higher than that in 1Q23). By product, the Company's revenues from nylon filament/grey fabric/shell fabric businesses totaled Rmb1,154mn/503mn/494mn (+13.9%/+29.4%/-16.9% YoY) in 1H23. By region, the Company's revenues from the Chinese mainland/overseas markets amounted to Rmb1,923mn/273mn (+15.3%/-28.1% YoY) in 1H23. Thanks to the gradual recovery of domestic demand, Taihua saw steady growth in its nylon filament and grey fabric businesses in 1H23.
Earnings: 2Q23 GPM improved by 1ppt QoQ, and 2Q23 recurring ANP reached Rmb94mn (+15.9% YoY).
In 1H23, Taihua's overall GPM stood at 21.2% (-3.5ppts YoY), including 2Q23 GPM of 21.6% (-1.3ppts YoY; +1.0ppt QoQ). We judge that the YoY downward pressure on GPM was mainly caused by declining downstream demand for some products and the Company's inauguration of new production capacities. After passing the short-term low in 4Q22, Taihua's GPM has been improving QoQ. In 1H23, the Company's selling/administrative/financial expense ratios changed by +0.21ppts/-0.62ppts/+0.24ppts to 1.12%/4.7%/1.29% respectively, showing an adequate control of overall expense ratio. For 1H23, Taihua posted ANP/recurring ANP of Rmb183mn/123mn (-23.5%/-28.1% YoY), including 2Q23 ANP/recurring ANP of Rmb109mn/94mn (-12.9%/+15.9% YoY). The non-recurring gains and losses in 2Q23 were mainly government subsidies and losses resulting from fixed exchange rates.
Outlook: Visible further recovery of the nylon sector in 2H23, and the nylon 66 production capacity of Huai'an project may become a driver for future earnings growth.
CCFEI.com data show that the operating rates and product prices of the nylon sector have rebounded to some extent in 2H23. This, coupled with possibly gradual recovery of consumer demand in the downstream, may further boost the sector's prosperity. Meanwhile, considering steady progress in the Company's Huai'an project within the year and the gradual inauguration of nylon 66 and chemical-recycled nylon production capacities, we expect that new production capacities will underpin Taihua's future earnings growth.
Potential risks: Larger-than-expected fluctuations in upstream raw material prices; downstream demand falling short of expectations; disappointing progress in the Company's production capacity expansion; and the localization of raw materials missing expectations.
Earnings forecast, valuation and rating: For 1H23, Taihua posted revenue of Rmb970mn (+2.67% YoY) and ANP/recurring ANP of Rmb183mn/123mn (-23.5%/-28.1% YoY). Considering that the nylon sector's recovery is slower than expected, we slightly lower our 2023E/24E/25E EPS forecasts to Rmb0.58/0.87/1.05 (from Rmb0.59/0.91/1.11). Referring to the 15x 2024E PE (CITICS Research forecast) of Weixing Industrial (002003.SZ, a high-quality manufacturer), and considering the high earnings elasticity brought by the inauguration of Taihua's new projects (we anticipate the Company's 2022-25E net profit CAGR to reach 52%, and that of Weixing Industrial to be 20%), we assign the Company 16x 2024E PE to derive a target price of Rmb14 and reiterate the "BUY" rating.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。