Summary of the report
Deep ploughing fine chemical industry for 24 years, a number of products to achieve the first in the world. The company's operating history can be traced back to 1997 and now has more than 1500 employees. Mainly engaged in dyes and agrochemical intermediates, pigment intermediates, new materials and other four major business sectors, accounting for 76 per cent of revenue in the first half of 2021, 20 per cent, 3 per cent and 1 per cent respectively. In terms of production capacity, Lottery is the world's largest supplier of DSD acid, DMSS and DMAS, and the third largest supplier of mononitrotoluene in the world. The global market share is 63%, 55%, 70% and 26%, respectively.
We will build a new Dongying base in Shandong and vigorously develop new materials business. Headquartered in Beijing, the company has production bases in Cangzhou, Hebei, Dongying, Shandong and Dongao, Shandong. In October 2021, Lottery Chemical announced the construction of Shandong Dongying Base, which will increase the production capacity of 50,000 tons of iron phosphate and 500 tons of BPDA after the completion of the new base, which is expected to be put into use in 2022 and contribute to its performance. We believe that this is the transformation and development of Lottery Chemistry to the field of new materials.
The company gives full play to its own advantages and vigorously develops iron phosphate. In 2017, Lottery Chemical began to lay out iron phosphate. After years of development, its products have been verified by a large number of customers, and have reached a stable cooperative relationship, including Bertre, Peking University first, Guoxuan Hi-Tech, Zhongtian Technology, Ossei Technology and so on. By the first half of the 21st century, Hebei Cangzhou base had a production capacity of 20,000 tons of iron phosphate, and the Shandong Dongying production base under construction had a total production capacity of 50,000 tons, with an additional capacity of 25000 tons of iron phosphate in 2022 and 2024 respectively. We conservatively estimate that the annual increase of 8% based on the low price of iron phosphate in the past three years is 13,000 yuan / ton (the price of iron phosphate in September in 21 years is 23,000 yuan / ton). It is estimated that the business income of iron phosphate from 2021 to 2023 is 130 million, 350 million and 760 million, and the net profit is 9.1 million, 35.1 million and 90.97 million.
BPDA of Lottery Chemical is likely to become another successful imported substitute after DSD acid.
BPDA is an important monomer for the synthesis of polyimide. The R & D and manufacturing technology of BPDA and polyimide are mainly monopolized by American, Japanese and Korean enterprises. China's BPDA and polyimide need to be imported in large quantities. BPDA in Dongying, Shandong Province, has a total production capacity of 500t and is expected to be put into production by the end of June 2022. Based on the price of 440000 yuan per ton, it is estimated that the BPDA business revenue of Lottery Chemical from 2022 to 2023 is 88 million and 220 million, and the net profit is 15.84 million and 44 million.
Target price of HK $2.4, buy rating. Considering the future development of Lottery Chemistry with ferric phosphate, BPDA and other new materials as the core, the development prospect of its industry is much higher than that of traditional business. We use the segment valuation method, the reasonable market capitalization of traditional business / iron phosphate and BPDA business is HK $1.49 billion / 620 million / HK $330 million respectively, corresponding to HK $2.40 in the 21-year target price, which is 65% higher than the current price.
Risk tips: policy risk; epidemic risk; environmental protection risk; price war