Event

According to the semi-annual report released by the company in 2021, the revenue in the first half of 2021 was 1.99 billion yuan, a sharp increase of 125% compared with the first half of 2020 (884 million yuan). The net profit returned to the mother was 429 million yuan, a sharp increase of 303% over the first half of 2020 (107 million yuan), and the semi-annual ROE was 24.24%. The basic earnings per share was 0.89 yuan, which was 305% higher than that in the first half of 2020 (0.22 yuan), and the weighted average rate of return on net assets was 24.03%. The net profit after deducting non-return was 425 million yuan, an increase of 318% over the first half of 2020 (102 million yuan).

Brief comment

The company's semi-annual net profit increased by 303% compared with the same period last year, and its profitability was enhanced. As the leader of organophosphorus flame retardants in the world, the company currently has a flame retardant production capacity of 115000 tons.

Affected by the short supply of flame retardants since 2021, the company's product prices have continued to rise. the average price of flame retardant products in the first half of the year was 25,000 yuan / ton, up 41.9% from the half-year of 2020 (17,000 yuan / ton) and 12.7% month-on-month. The company's flame retardant sales reached 64000 tons in the first half of the year, an increase of 68% over the same period in 2020 (38000 tons).

Since the first quarter of 2020, the company's single-quarter revenue and net profit have continued to grow. In the first half of 2021, the company achieved a net profit of 429 million yuan and a gross profit margin of 37.22%, an increase of 3.3% over the same period in 2020. In the future, with the continuous improvement of downstream market demand, the company's industry has a strong growth momentum.

BDP+TCPP flame retardant continues to be high in demeanor, with both volume and price rising. In the first half of 2021, with the economic recovery in Europe and the United States, coupled with the gradual recovery of the global automotive industry, the global demand for flame retardants rebounded and the global trade demand increased, resulting in a difficult situation in shipping, resulting in a decline in the export volume of flame retardants and an imbalance between global supply and demand. With the rapid development of energy vehicles and the construction of new infrastructure such as 5G base stations, there is a strong new demand for engineering plastics in the market. Due to the upgrading of safety and environmental protection in China. Non-standard chemical enterprises have withdrawn from the market one after another, the growth of BDP capacity is limited, and there is an imbalance between supply and demand. It is expected that in the second half of the year, with the easing of maritime supply, overseas demand, export demand growth, industry prosperity. In July 2020, the company put into production 20, 000 tons of BDP production line, and the industry is in short supply. The price of engineering flame retardant BDP was 23-26,000 yuan / ton in the first half of 2020 and rose to 30,000-35,000 yuan / ton in the second half of the year. By June 2021, the overall average price of BDP flame retardant has reached 40,000 yuan / ton, an increase of 3000 yuan / ton compared with the beginning of 2021. In the fourth quarter of 2020, the production capacity of two main phosphorus flame retardants was shut down, affecting the global production capacity of about 1/4. With the elimination of the cold spell in the United States in the first quarter, the price of raw materials such as propylene oxide fell back to the normal level, and the price of TCPP fell back to 16000 yuan / ton. With bright performance and enhanced profitability in the first half of 2021, the company continues to become the leader of phosphorus flame retardants in the world and develop a variety of chemical auxiliaries.

Green environmental protection market energized amine promoters and catalysts, paint auxiliaries business benefit. The company's amine additive plate is deeply coordinated with the Israeli high-end product Ahava acquired by Fosun and the daily chemical research institute established by Fosun, and the downstream of amine auxiliaries are mainly used in high-end daily chemicals. Affected by COVID-19 's epidemic situation, the global demand for personal care products for hand sanitizers, fungicides and antimicrobials is growing rapidly, thus increasing the demand for quaternary ammonium salts and aliphatic amines, and the company's products are in short supply. Some amine products can be used in the treatment of industrial dye wastewater, the regulation of the national industrial environment, coupled with increasingly stringent controls and requirements, the domestic acid dye intermediates with large production capacity are bound to improve wastewater treatment in the future. the demand for related products of the company will increase greatly. In order to meet the market demand, the company actively expanded its production capacity and carried out the second phase of the project transformation in 2020. it is expected to trial production at the beginning of 2022, adding 15000 tons of tertiary amine. there are also 10,000 tons of quaternary ammonium salt and 5000 tons of catalysts, and the production capacity is expected to reach 40,000 tons by the end of 2021 to 2022. In terms of paint auxiliaries, the paint auxiliaries of the company are bio-based polymer materials, and the raw materials are biological renewable resources such as cashew shell oil and dimeric acid, which can be widely used in ships, marine engineering, offshore wind power, bridges, petrochemical and other fields. the anticorrosion of paint auxiliaries is used in supporting scenes, has the basis of expanding the market, has the dual effects of protecting the environment and saving resources, and meets the requirements of China's carbon neutralization policy. The company actively laid out the paint auxiliaries business. The output and sales volume in the first half of 2021 were 4800 tons and 4700 tons respectively. The production and sales of paint auxiliaries were stable. The paint auxiliaries business was put into use in October 2019. The company sold 230 tons of paint auxiliaries in 2019, and the production capacity of paint auxiliaries gradually released in 2020. the company expects to sell 12000 tons in 2021 and is expected to double again in 2022 to reach the sales target of 20, 000 tons. The company strives to become one of the major suppliers in the industry in the next 2 years.

Based on the flame retardant industry chain, accelerate the construction of Shandong project, strategic partners join hands. The company has an annual production capacity of 115,000 tons of organophosphorus flame retardants (65000 tons of engineering plastic flame retardants, 40,000 tons of polyurethane flame retardants and 10,000 tons of soft foam flame retardants). The second phase of BDP engineering plastic flame retardants has been put into production in July 2020. With the continuous commissioning of new production capacity, the company's market share will continue to increase, continue to benefit from the pattern of rising volume and price in the flame retardant market, and the endogenous growth is strong. Looking to the future, in order to seize the opportunity period of the industry, the company plans to continue to increase its flame retardant production capacity and accelerate the Shandong base flame retardant project. At the beginning of 2021, the company plans to raise no more than 1.57 billion yuan to invest in the construction of Shandong Wansheng's "Integrated production of 319300 tons of functional New Materials (Phase I)" project, which has been put on record and is conducting environmental assessment. With an annual output of 70,000 tons of phosphorus oxychloride, 100000 tons of high-end epoxy resins and auxiliaries and 29300 tons of surfactants, 120000 tons of new material flame retardants (70,000 tons of green polyurethane flame retardants, 50,000 tons of green engineering plastic flame retardants) will be added by 2023, and another 112000 tons of new material flame retardants and special flame retardants will be added by 2025. at that time, the total production capacity of flame retardants will be 340000 tons, about three times the company's current production capacity. It is expected to become the main domestic supplier within 2-3 years, opening up the growth space of fine chemicals in the future. The target of this issue is Nanjing Iron and Steel Co., Ltd. In recent years, it has accelerated the coordinated development of strategic industries in the fields of energy and environmental protection, new materials and intelligent manufacturing, and has good competitive advantages in enterprise management, digital transformation and channel network. promote the company's industrial technology upgrading, achieve cost reduction and efficiency. This non-public offering will help Nanjing Iron and Steel Co., Ltd. to improve the layout of the new materials industry, help the company seize the industry development opportunities to expand production capacity, and enhance the competitiveness of future projects.

Profit forecast and valuation: the company's net profit in 2021, 2022 and 2023 is 905 million yuan, 1.005 billion yuan and 1.267 billion yuan respectively, EPS is 1.87 yuan, 2.08 yuan and 2.62 yuan respectively, corresponding PE is 11.09X, 9.98X and 7.91x respectively, and the target price is 27.5 yuan per share, maintaining the "buy" rating.

Risk hint: the price of raw materials is rising, and the project production is not as expected.