The global tape market is broad. Domestic enterprises welcome high-end tape import replacement nodes, and companies may become the biggest dark horse. The global tape market is expected to reach $74.4 billion by 2025, with an average annual growth rate of 5.2%. The current division of the global tape pattern is quite clear: overseas companies occupy the high-end industrial tape market, while domestic enterprises focus on the middle and low end civil tape markets. However, as the terminal car, panel and other industries shift to the domestic market, the domestic tape industry will usher in import substitution opportunities. As a domestic tape leader, compared with other domestic companies, the company has advantages such as strong R&D strength and rapid growth. We believe that the company is expected to take advantage of this import substitution to become the first global tape leader.
Short-term expansion of civilian tape production resonated with the logic of volume increase and cost reduction: the company maintained 15% ROE with high turnover, and continued to expand production stocks to increase market share in the civilian market. The company's production capacity is expected to reach 4.78/5.34 billion square meters in 2022-2023, respectively. In addition, the company's layout of BOPP films to reduce upstream costs and the decline in raw material prices to ease cost pressure is also an important driving force for short-term profit recovery. We estimate that the cost of BOPP film after production can be saved 700-1200 yuan/ton.
As the product structure is upgraded in the medium term, profit volume will grow rapidly: the opportunity to replace high-end industrial tape imports will come, and the company may complete the evolution within the next 3-5 years with high R&D investment. Currently, the company is transforming into automotive wiring tape, medical tape, degradable tape, etc.
Long-term establishment of its own brand and strengthening sales channels: The company is currently building an omni-channel marketing and promotion platform. We believe that building its own brand, strengthening channels with brands, and building brand+channel barriers will be the best solution for long-term development.
Investment advice: The company is a leader in civil tape and is expected to use domestic substitution opportunities to grow into a leading industrial tape company. The company is expected to achieve net profit of 2.09/389/523 million yuan in 2021-23. The company was given 18XP/E in 2022, with a target price of 36.67 yuan, coverage for the first time, and a “buy” rating.
Risk warning: New production capacity falls short of expectations, sea freight rates continue to be high, etc.
