Chenhua is the leading chemical industry in the field of domestic auxiliaries subdivision, and it is the only enterprise in China that has mastered the intermittent and continuous production of polyetheramine, with rich technical reserves and abundant new planned production capacity. It is expected to fully benefit from the high economic cycle of domestic wind power and construction, and the performance has entered a period of rapid growth. We are optimistic about the high growth potential of the company in the future, and it is expected that the company will achieve a net profit of 1.51 billion yuan in 2021-2023. With reference to comparable companies in the industry, we will give 21xPE in 2022, corresponding to the target price of 35 yuan, covering for the first time and giving a "buy" rating.

Domestic auxiliaries are the leader in the field of subdivision, with strong R & D strength. Chenhua Co., Ltd. is the leader in the field of domestic auxiliaries subdivision, business layout of surfactants, flame retardants and silicone rubber. The company has remarkable advantages in technological research and development. In 2021, it was selected by the Ministry of Industry and Information Technology as the third batch of specialized "Little Giant" enterprises.

At the same time, the company is the only company in China to master the intermittent and continuous production of polyetheramine, the continuous catalyst for the company's independent research and development of products, the production process can significantly reduce energy consumption and labor costs. The company has maintained a R & D expenditure rate of more than 3% in recent years, and has made progress year by year, paying attention to the combination of industry and research, and has maintained good cooperation with many domestic universities.

The supply of polyetheramine continues to be tight, and the company is expected to fully benefit from the high business cycle. Polyetheramine is mainly used in wind power and construction, which together accounted for 87% of polyetheramine consumption in 2020 (according to the prospectus for new materials of Zhengda). In terms of wind power, with the economic improvement of parity projects brought about by the accelerated decline in the cost of wind power and the launch of the domestic goal of "2030 carbon peak and 2060 carbon neutralization", domestic wind power has entered a high economic cycle, and new installations are expected to grow by 15% from 2021 to 2025; in construction, infrastructure investment is expected to become an important starting point for steady growth, driving demand for paints and polyetheramine upstream. According to our estimation, the shortfall of domestic wind power and other polyetheramines will reach 0.710 million tons and 0.4 million tons in 2022, respectively. At present, the new global production capacity of polyetheramine is mainly concentrated in China, and most projects have not yet achieved the indicators of environmental assessment and energy assessment, and it is expected that the actual production capacity will be landed after 2022. It is expected that the new production capacity in the industry from 2023 to 2023 will mainly come from the resumption of 10,000 tons / year continuous production of polyetheramine by Huaian Chenghua, a wholly-owned subsidiary of Chenghua, and the company will fully benefit from the high price boom cycle under the shortage of polyetheramine.

There is plenty of new capacity, and the company continues to expand. The company announced the production expansion plan of 40,000 tons of polyether amine and 42000 tons of polyether projects in September 2021. We believe that the company will use the existing mature process experience to enlarge the production capacity, inherit technical and management experience, and combine its rich production experience to further save unit cost. Rely on their own cost advantages, quickly increase their own market share, while effectively lower than the possible price decline brought about by the business risk.

Risk factors: the construction of new capacity is not as expected; under the influence of repeated local epidemics, the start-up of wind power is not as expected to affect the company's product demand; under the repeated influence of local epidemic, the delivery period of the company's products may be extended due to inspection; the rapid expansion of production in the industry leads to a sharp decline in the price of polyetheramine products; Huaian Chenghua's remaining production capacity may slow down production due to policy and other factors. Shareholders with more than 5% of their shares continue to reduce their holdings.

Investment suggestion: we are optimistic about the high growth potential of the company in the wind power and construction industry in the future. It is estimated that the company will achieve a net profit of 1.51 trillion yuan in 2021-2023. With reference to the comparable company in the industry, we will give the company 21xPE in 2022, corresponding to the target price of 35 yuan, and give it a "buy" rating for the first time.