The domestic nylon 66 industry is leading. The profit trend is improving. The company's main business is the production and sale of products such as nylon 66 industrial yarn, curtain cloth, slices, adipic acid, etc., and is the leader in the domestic nylon 66 industry. The company's main production capacity currently includes 210,000 tons of nylon 66 slices, 133,000 tons of nylon 66 industrial yarn, 80,000 tons of nylon 66 curtain cloth, and 290,000 tons of adipic acid. Since the beginning of this year, the upstream supply pattern has improved, driving the sales prices of the company's main products, nylon 66 slices, industrial yarn, and curtain cloth, to rise markedly. The average prices in the third quarter of 2021 rose nearly 104%, 41%, and 47%, respectively. At the same time, the price of the main raw material adiponitrile rose only 20%. Benefiting from the widening price spreads and integration advantages of major products, the company's net profit for the first three quarters of 2021 was 1,618 billion yuan, an increase of 11 times over the previous year.
Benefiting from the localization of adiponitrile, demand for nylon 66 will grow rapidly, Tianchen Qixiang, Zibo, 200,000 tons of hexidonitrile and INVISTA Shanghai's 400,000 tons of hexidonitrile will be completed and put into operation in late 2021 and mid-2022, respectively. The increase in upstream supply will, on the one hand, increase the company's current capacity utilization rate, and will also drive rapid growth in demand for nylon 66 in downstream automotive, civil wire and other fields, which will help the company continue to expand nylon 66 production capacity and consolidate its leading position in the market. Based on the difficulty of adiponitrile technology and the long R&D cycle, it is expected that its supply pattern will be orderly in the future, and the PA66 price difference is expected to remain at a high level.
The capital increase was introduced to expand and strengthen the Nylon Industrial Company announced on December 14, 2021, that Nylon Chemical, a wholly-owned subsidiary of the company, plans to introduce the Jinshi Manufacturing Industry Transformation and Upgrading New Materials Fund through a private agreement. The Jinshi Fund will increase its capital by 1.2 billion yuan, holding a share ratio of 20%-25% of Nylon Chemical's shares. This capital increase will help the company speed up the construction of 400,000 tons of hydrogen ammonia projects and related industrial chain integration projects to build a new nylon material base with international competitiveness.
Expand aramid products and continue to develop new materials business
In October 2020, the company invested 100 million yuan in cash to establish a wholly-owned subsidiary, Henan Shenma Aramid Technology Development Co., Ltd., to build a high-performance aramid fiber project with an annual output of 2,000 tons. The estimated total investment is 686 million yuan, the construction period is 2.5 years, the average annual sales revenue is 393 million yuan, and the tax payback period (including the construction period) is 7.84 years. According to market conditions and the company's feasibility study data, the profit of aramid products is relatively good, with a net profit of over 50,000 yuan per ton of aramid and a gross margin of over 25%. According to the company's 2021 mid-year report, the account balance of the company's projects under construction at the end of the period was 2.27 billion yuan, including 100,000 tons/year of polycarbonate phase I, 25,000 tons/year of BOPA film, 20,000 tons of specialty nylon 66 slices, 30,000 tons of 1,6-hexanediol, bisphenol A projects, etc.
Profit Forecasts and Investment Ratings
The company's revenue for 2021-2023 is estimated to be 130.32/146.36/16.360 billion yuan respectively, net profit of the parent is 1,904/2241/2,590 billion yuan respectively, and EPS is 1.85/2.17/2.51 yuan respectively. Corresponding to the closing price of 11.82 yuan on December 21, PE is 6/5/5 times, respectively. Considering that the company is a leader in the nylon 66 industry, benefiting from the localization of upstream azinitrile, while continuing to lay out other new materials such as aramid, for the first time, to evaluate the company's “increase in holdings” level.
Risk warning
There is a risk that raw material prices will fluctuate drastically, downstream demand expansion will be blocked, and project commissioning will be delayed.