Main points of investment:
The company is the leading enterprise of POF heat shrinkable film in the world. Zhejiang Zhongcheng is mainly engaged in the research and development, production and sales of POF heat shrinkable film products. According to the specific use and process can be divided into POF ordinary film, POF cross-linked film, POF high-performance film 3 categories 8 series, is the first in the country, the second POF production enterprises in the world. The company has developed and self-made a number of national leading production lines and production equipment, and obtained national patents on polyolefin heat shrinkable film production lines and other equipment. In the first three quarters of 2020, the company achieved revenue of 1.046 billion yuan, + 16.0% year-on-year, and net profit of 122 million yuan, + 82.3% compared with the same period last year. Among them, the revenue in the third quarter was 399 million yuan, + 19.4% compared with the same period last year, and the net profit was 55.2072 million yuan, + 152.0% compared with the same period last year. The company's POF product structure has been continuously optimized, increasing the production of cross-linked films and high-performance films with high value-added products, and 2020H1 has raised the overall gross profit margin of the plate to 43.5%.
Thermoplastic elastomer is expected to become a new growth point. Through the holding subsidiary Zhongli synthetic materials into the field of thermoplastic elastomers, the company has expanded its high-quality customers in cable, asphalt modification, shoemaking, optical cable ointment, lubricating oil adhesive and other industries. The company's thermoplastic elastomers began production and sales in the second half of 2017, and then the products continued to sell. The revenue of this sector increased from 15.7413 million yuan in 2017 to 408 million yuan in 2019, an increase of 2489.2%.
After three years of losses, the 2020H1 thermoplastic elastomer plate began to make a profit, and with the emergence of the inflection point of the plate, thermoplastic elastomer is expected to become a new growth point for the company in the future.
5G optical fiber ointment is mass produced by SEP. The company has successfully developed and mass-produced SEP products for 5G optical fiber ointment, and achieved batch supply to downstream enterprises, and has become a supplier to a number of domestic and foreign optical fiber and cable ointment manufacturers. The year 2020 is the first year of large-scale construction of 5G. The large-scale construction of 5G base stations will stimulate the demand for optical cables and drive the demand for SEP for 5G optical fiber ointment.
Profit forecast and investment rating: the company is the leading enterprise in the global POF industry, with the first production capacity in the country and the second in the world. The company enters the field of thermoplastic elastomers through holding subsidiary Zhongli synthetic materials, and its main products are used in cable, asphalt modification, shoemaking, optical cable ointment, lubricating oil viscous agent and other industries. Among them, 5G optical fiber ointment is successfully developed and mass produced by SEP, which will benefit from the large-scale construction of 5G. It is estimated that from 2020 to 2022, the EPS of the company will be 0.20,0.35,0.45 yuan per share respectively, and the corresponding PE will be 34.35,19.69 and 15.11 times respectively.
Risk hint: the risk of product price falling; the project schedule is not as expected; the downstream demand of the product is not as expected.