Overview of events

In the first three quarters of 21, the company's realized income / return net profit / deduction non-net profit was RMB 494 million, an increase of 110.09%, up 113.72%, 113.46% and 54.81%, respectively, from 51.39% to 44.84%, respectively.

Analysis and judgment:

According to our analysis, traditionally, Q3 is the off-season, but because big customers generally place orders half a year in advance, the distinction between the company's off-peak season gradually decreases. Thanks to the downstream demand, 21Q3 has sufficient orders, and with the company's investment project adding 4.5 million square meters of brushed cloth to be gradually put into production in batches (30% has been invested in the first half of the year), it is expected to promote the rapid growth of the company's performance.

The decline in gross profit margin is affected by the rise in raw materials and capacity utilization in the off-season. The increase in interest income, income from asset disposal and the reduction in credit impairment losses make the net profit margin slightly lower than the gross margin. 21Q3's gross profit margin was 38.4%, with a year-on-year decline in 5.42PCT and a month-on-month decline in 4.13PCT. We analyze that on the one hand, it is due to the increase in the price of raw materials, on the other hand, it is also affected by capacity utilization in the off-season. 21Q3's net interest rate was 30.07%, down 0.68PCT from the same period last year and 1.22PCT from the previous year. From the point of view of the expense rate, the sales / management / R & D / financial expense rate is 0.49%, 1.62%, 3.89%, 2.32%, respectively, and the year-on-year increase is-0.25/-0.84/1.77/-2.78PCT. The decrease in financial expenses is mainly due to a substantial increase in interest income. Credit impairment loss / income was 0.73%, 0.7PCT decreased year-on-year, asset disposal income / income was 1.43%, year-on-year growth 1.5PCT.

Investment suggestion

According to our analysis, the unit price of the company is similar to that of other companies, but its profitability is better than that of its peers, mainly due to higher efficiency and yield. The company's barriers are:

(1) original hot paste + wheel coating sizing process, so that the material is more economical, the air tightness is better, and the production efficiency is higher; (2) the equipment supplier customizes the equipment according to the requirements of the company, and the human efficiency is higher; (3) the self-yield of the company's base cloth increases, and the cost is more advantageous; (4) there are more types of subdivided products with higher gross profit margin in airtight materials.

The future growth space of the company lies in: (1) in the short term, the investment project will be put into production in batches, which is expected to drive airtight materials to maintain a compound annual growth rate of 30-50% in the next 3-5 years; (2) in the medium term, the increase in income share and efficiency of airtight materials will lead to an increase in gross profit margin; (3) in the long run, material prices have fallen sharply since 17 years, which is expected to expand the scope of application of airtight materials.

In 2021-2023, the income, net profit, EPS, closing price, purchase rating and target price were 6.56, 823, 1.025 million, 1.92, 2.45, 3.1 and 38.49 respectively, respectively, corresponding to PE's 20-16-12, and the purchase rating and target price were 49.09 (corresponding to 22 years, 20 times).

Risk hint

Airtight material price decline risk; industry competitor entry risk; production failure risk; downstream application expansion risk not as expected; systemic risk.