2021 and 1Q22 results are in line with our expectations

The company announced 2021 results, achieving income of 18.98 billion yuan, + 51.6% year-on-year; net profit of 2.65 billion yuan, + 353.9% year-on-year, corresponding to 3.24 yuan per share, in line with expectations. Of this total, 4Q21 achieved an income of 5.66 billion yuan and a net profit of 1.05 billion yuan.

At the same time, the company issued an announcement of pre-increase in first-quarter results, which is expected to achieve a net profit of 11.5-1.25 billion yuan, an increase of 313% and 349% over the same period last year, the highest single-quarter performance in history. The reason for the substantial increase in performance is that major products such as glyphosate, silicone and industrial silicon are affected by the relationship between supply and demand, which has continued to be prosperous since 2021, and product prices continue to run at a high level.

Trend of development

Accelerate the upstream layout and build an integrated industry chain of silicon mine, industrial silicon and organosilicon. In 2021, the company is located in the silicon mine with 80 million tons of reserves in Yanjin, Yunnan Province. The first phase of the project has reached full production in mid-2021, effectively increasing the self-supply ratio of raw materials. In addition, on the basis of the original 100000 tons of industrial silicon production capacity, the company accelerated the construction of Yunnan Yanjin industrial silicon project, implemented the 65000-ton industrial silicon construction project in Pingwu, Sichuan, and completed the 54000-ton industrial silicon acquisition project of Yunnan Jingcheng silicon industry. the industrial silicon is completely self-sufficient.

With the gradual implementation of the project, the company's industrial silicon production capacity will reach more than 300000 tons. At the same time, the company actively expanded its strategic cooperation with downstream photovoltaic enterprises and jointly invested in the construction of the first phase of 200,000 tons / year industrial silicon powder project with Leshan Xiexin.

Power terminal to enhance the added value of silicon-based materials. In 2021, the company's operating income of silicon-based terminals and special silane products reached 3.204 billion yuan, the terminal conversion rate reached more than 40%, and the middle and high-end products accounted for 44% of the terminal products. By the end of 2021, the company has nearly 3000 varieties of silicone terminal products. We believe that the gap between the company and foreign benchmark silicone enterprises has been further narrowed to further enhance the value of the industrial chain.

Expand the category, plant protection business bigger and stronger. During the reporting period, by holding Hefei Xingyu and participating in Yingtai Biology, the company cut into the field of selective herbicides, insecticidal and sterilization to achieve the sharing of sales channels and enhance the scale and competitiveness of agrochemical business. In addition, the company accelerated the large product strategy, made every effort to promote the construction of Ningxia Xin'an glyphosate and key intermediates project, completed the first phase of 3000 tons / year glyphosate project construction, and further enriched the category of agrochemical products.

Profit forecast and valuation

We basically maintain the 2022max earnings forecast of 3.08 billion yuan / 3.18 billion yuan in 2023, and the current share price corresponds to the price-to-earnings ratio of 7.2max in 2023. We keep the company's target price unchanged at 35 yuan, corresponding to 29% rising space and 9.3 times earnings in 2023, and maintain an industry rating that outperforms.

Risk

Glyphosate demand, price decline, silicone prices down sharply, safety and environmental protection production risk.