Wansheng Co., Ltd. is a leader in the global phosphorus-based flame retardant industry. The company has further expanded its product range by investing in Zhongzhou, Fujian, to enter the electrolyte additives field.
Key points to support ratings
The company is a global leader in the phosphorus-based flame retardant industry and has been deeply involved in the functional fine chemicals business, mainly phosphorus-based flame retardants, for more than 20 years. The company currently has a production capacity of 75,000 tons of engineering plastics flame retardants, 40,000 tons of TCPP, 10,000 tons of soft foam flame retardants, 25,000 tons of amine additives, 10,000 tons of catalysts, and 40,000 tons of paint additives. The company's revenue increased from 1,227 million yuan in 2016 to 2.33 billion yuan in 2020, with an average compound annual growth rate of 21.5%; Guimu's net profit increased from 149 million yuan in 2016 to 393 million yuan in 2020, with a compound annual growth rate of 35.83%.
In 2021, the company's revenue for the first three quarters was 3,068 billion yuan, an increase of 97.80% over the previous year, and the net profit of the mother was 625 million yuan, a sharp increase of 171.41% over the previous year.
Multiple factors have contributed to the increase in demand for BDP flame retardants. The company accounts for more than 40% of global BDP production capacity and has benefited the most from this round of price increases. Factors such as EU halogen-free regulations, expansion of PC production capacity, construction of 5G base stations, and development of the NEV industry have contributed to the growth in demand for BDP flame retardants. According to EVTank's forecast, global NEV sales will reach 18 million units in 2025, and it is estimated that the corresponding demand for engineering plastics flame retardants in the NEV sector will be about 108,800 tons. Overall, we expect demand growth for BDP to be slightly over 20,000 tons/year over the next 5 years. As a result of the 2019 Xiangshui accident, the withdrawal of some domestic production capacity, and the successive shutdown of overseas manufacturers due to the epidemic in 2020, the global supply of BDP flame retardants declined sharply. BDP prices rose sharply in 2021. The price hit 51,000 yuan/ton in October, up 59% from the same period last year. According to the company's theoretical production capacity of 65,000 tons/year, for every 1,000 yuan/ton increase in the price of BDP flame retardants, the thickness of the company's EPS increased by 0.114 yuan.
Invest in Zhongzhou, Fujian, to lay out the field of new energy materials and expand future profit growth points. The company invested in Zhongzhou, Fujian, to build a new “Sanming Lithium Ion Electrolyte Additives and New Conductive Materials Project”, which will produce a total of 15 kinds of lithium-ion electrolyte additives and new conductive materials per year, totaling 95,500 tons. Among them, the first phase had a production capacity of 20,500 tons. Influenced by the boom in the downstream NEV industry and the increase in the proportion of lithium iron phosphate batteries, demand for VC and FEC increased dramatically. It is expected that supply and demand for VC and FEC will maintain a tight balance in the later stages, and it is expected that the company will continue to contribute to increased performance in the future after releasing production capacity.
Profit forecasting and valuation
Based on Shandong Wansheng's “Integrated Production Project for Functional New Materials with an Annual Output of 319,300 Tons”, the “Sanming Lithium Ion Electrolyte Additives and Conductive New Materials Project” in Zhongzhou, Fujian, and the long-term shortage of supply of BDP flame retardants, without considering the loss of share capital due to increased issuance, the company's earnings per share for 2021-2023 are estimated to be 1.79 yuan, 2.07 yuan, and 2.37 yuan respectively. The corresponding PE was 14.6 times, 12.6 times, 11.1 times, respectively. The first coverage gave a purchase rating.
The main risks faced by ratings
The risk of other BDP flame retardant manufacturers exceeding expectations; the risk that the project will be delayed due to the blocking of the EIA energy assessment for the Fujian Zhongzhou project; the risk of fluctuations in product sales prices; the risk of production safety management risks; and the risk of the impact of the epidemic.
