The company announced plans for the West Oak headquarters and 50,000 ton EC and derivative solvent materials project in Sichuan. The lithium solvent business is expected to enter a stage of high growth from 1 to 10. In the long run, the EO electrolyte solvent process developed independently by the company has comprehensive cost advantages, easy sales of by-products, and is in deep line with the national dual-carbon strategy, and is expected to become the mainstream process route for electrolyte solvents in the future. On the other hand, through collaboration with electrolyte additives and lithium battery material suppliers, the company promotes the collaborative layout of the industrial chain and continues to enhance the competitiveness of the lithium battery business. We believe that the electrolyte materials business is expected to lead the company's strategic transformation and open up a second growth curve.
Due to the company's disclosure of Sichuan's production expansion plan, it is expected to contribute to performance from the fourth quarter of 2022, maintaining the company's net profit forecast for 2021 at 426 million yuan, and raising the 2022/2023 net profit forecast to 622/960 million yuan. Corresponding to 2021-2023 EPS was 0.63/0.91/1.41 yuan respectively. The current stock price corresponds to 43/30/19 times PE in 2021-2023. Due to supply shortages since the beginning of the year, supply shortages have continued to boost the electrolyte industry chain sentiment In addition, the company's solvent business has huge room for growth. Referring to comparable company valuations, the company was given 40 times PE in 2022, the target price was raised to 36 yuan, maintaining the “buy” rating, and continuing to recommend.
The company plans to expand the production of EC and derivative solvent materials projects by 50,000 tons in Sichuan. The company announced that it plans to build an Oak West headquarters and a comprehensive carbon dioxide utilization project in Chengdu, Sichuan. Among them, the West Oak headquarters will be the company's business settlement center in the western region, with an estimated annual settlement scale of about 2 billion yuan; the carbon dioxide comprehensive utilization project is divided into one and two phases, with an estimated investment of 1.05 billion yuan and 2.1 billion yuan respectively. The first phase of the project plans to use Sichuan Petrochemical's industrial exhaust (about 25,700 tons/year) and ethylene oxide (about 25,000 tons/year) to build 50,000 tons of vinyl carbonate (EC) and 32,400 tons of dimethyl carbonate (about 25,000 tons/year) DMC), 15,000 tons of methyl ethyl carbonate (EMC), 2,075 tons of diethyl carbonate (DEC) plants, and 20,300 tons of polyester grade ethylene glycol as a by-product. The company will invest RMB 300 million at a ratio of 90% and 10% respectively to establish Sichuan Oak Lithium Battery New Materials Co., Ltd. as the implementing entity for the announced project.
The self-developed EO solvent process route has completed a breakthrough from 0 to 1. Since 2015, the company has jointly developed an EC/DMC process for the preparation of lithium solvents from ethylene oxide (EO) with the Chinese Academy of Sciences. The lithium battery electrolyte solvent project with an annual output of 20,000 tons was put into operation in October 2020, and the 2021Q2 production was expanded to 30,000 tons/year. At present, it has been able to ship battery-grade products in batches, and was certified as a second-level supplier of qualified solvents by Company C, a leading power battery company, on August 30. 2020Q4, 2021Q1, and 2021Q2 companies sold 3,500, 5600, and 4,452 tons of EC&DMC products respectively. The price per ton was 7519, 6362, and 7440 yuan/ton, with gross profit margins of 38%, 32%, and costs of 4661, 4326, and 5069 yuan/ton per ton. Looking at the long term, we believe that the EO solvent process route developed by the company itself has three advantages and is expected to become the mainstream solvent process route in the future: (1) benefits from the low price of EO as a raw material and has a certain long-term cost advantage; (2) the by-product ethylene glycol is easier to sell; (3) using carbon dioxide as a raw material, which meets the requirements of the national dual carbon strategy.
Sichuan's long-term plan may reach 150,000 tons, and the lithium solvent business is expected to enter a stage of high growth from 1 to 10.
According to current market prices, we estimate that the first phase of the company's 50,000 ton EC and derivative solvent materials project in Sichuan is expected to bring in an annualized performance contribution of more than 300 million yuan after it is put into operation. We believe that the disclosure of the Sichuan production expansion project this time means that the company has mastered the synthesis process of various lithium battery electrolyte solvents from ethylene oxide to EC, DMC, EMC, DEC, etc., and the solvent business, which has gone through many years of research, is expected to enter a rapid growth cycle from 1 to 10. According to the company announcement, we estimate that the long-term EC production capacity of the company's Sichuan project is 150,000 tons. At the same time, the company is also actively promoting plans to expand production in Jiangsu, Liaoning and other places. The solvent production capacity is planned for about 500,000 tons during the “14th Five-Year Plan” period, with a long-term plan of nearly one million tons, which is expected to gradually grow into the world's main lithium battery electrolyte solvent supplier.
Continue to promote collaborative layout and continuously enhance the competitiveness of the electrolyte materials business. The company took 35% of Suzhou Huayi's shares in April 2020. Huayi is one of the world's major additive suppliers. It currently has 2000 tons of VC&FEC production capacity, and plans to build 116,500 tons of additives and lithium salt production capacity in Dalian in 3 phases. Among them, the first phase of 5,000 tons of VC and 5,000 tons of FEC is expected to be put into operation in mid-2022. We estimate that Huayi's net profit in 2021 is close to 200 million yuan, which is expected to significantly increase Oak's performance. On August 2, Oak signed a strategic cooperation framework agreement with Shenzhen Yanyi New Materials. The Sichuan project also introduced Shenzhen Yanyi as a shareholder. Shenzhen Yanyi currently has five major business segments, including electrolytes and additives, lithium battery adhesives, PI new materials, lithium supplement additives, and special polymer materials for solid state batteries. It has deep technical accumulation and rich customer resources in the field of lithium battery-related materials. The two sides are expected to cooperate to promote the implementation of many lithium battery material projects in the southwest region.
Risk factors: The progress of new projects fell short of expectations; prices of products and raw materials fluctuated; and infrastructure investment declined sharply.
Investment advice: The company announced plans for the West Oak headquarters and 50,000 tons of EC and derivative solvent materials in Sichuan. The lithium solvent business is expected to enter a stage of high growth from 1 to 10. In the long run, the EO electrolyte solvent process developed independently by the company has comprehensive cost advantages, easy sales of by-products, and is in deep line with the national dual-carbon strategy, and is expected to become the mainstream process route for electrolyte solvents in the future. On the other hand, through collaboration with electrolyte additives and lithium battery material suppliers, the company promotes the collaborative layout of the industrial chain and continues to enhance the competitiveness of the lithium battery business. We believe that the electrolyte materials business is expected to lead the company's strategic transformation and open up a second growth curve.
Considering the company's disclosure of Sichuan's production expansion plan, it is expected to contribute to performance from the fourth quarter of 2022, maintaining the company's net profit forecast for 2021 at 426 million yuan, and raising the 2022/2023 net profit forecast to 622/960 million yuan. Corresponding to 2021-2023 EPS was 0.63/0.91/1.41 yuan respectively. The current stock price corresponds to 43/30/19 times PE in 2021-2023. Due to supply shortages since the beginning of the year, supply shortages have continued to boost the electrolyte industry chain sentiment There is huge room for growth in the solvent business of the superposition company. Referring to comparable company valuations (Tianci Materials/Xinzhoubang/Shi Da Shenghua/Yongtai Technology currently responds to Wind's 2022 unanimous expectations of 46/48/56/47 times PE), the company was given 40 times PE in 2022, raised the target price to 36 yuan, and maintained the “buy” rating, and continued to recommend.