Key elements of the report:

On the evening of April 19, 2022, Co., Ltd. released its 2021 annual report and the first quarterly report of 2022. In 2021, the company realized operating income of 1.835 billion yuan, an increase of 5.56% over the same period last year, and the net profit belonging to shareholders of listed companies was 288 million yuan, an increase of 375 million yuan over the same period last year. In the first quarter of 2022, the operating income was 611 million yuan, an increase of 83.90 percent over the same period last year, and the net profit belonging to shareholders of listed companies was 308 million yuan, an increase of 2208.11 percent over the same period last year.

Main points of investment:

Under the tuyere of the new energy industry, PVDF was put into production in time, bringing a new performance growth point for the company: in 2021, Lianchuang completed the divestiture of the Internet business and returned to the main chemical industry. for the whole year, the operating income of the Internet sector reached 94.0966 million yuan, accounting for 5.13%, resulting in a net profit of-25.6404 million yuan. The chemical new materials plate achieved business income of 1.741 billion yuan, of which polyurethane new materials plate achieved business income of 732 million yuan, an increase of 16.95% over the same period last year, with a gross profit margin of 6.89%, a decline in 0.68pct over the same period last year. The operating income of the fluorine-containing new materials plate reached 1.009 billion yuan, an increase of 127.47% over the same period last year, and the gross profit margin of the plate was 67.13%, an increase of 57.53pcts over the same period last year. The significant increase in the comprehensive performance of the fluorine-containing new materials sector and the company compared with the same period last year was mainly due to the acceleration of the development of the new energy industry during the reporting period, the outbreak of downstream demand for lithium grade PVDF and its raw materials R142b, a serious imbalance in the supply and demand structure of the two types of materials, and prices soaring. According to Baichuan Yingfu data, as of December 31, 2021, the average market price of R142b was 185,000 yuan / ton, up 560.71% from the same period last year, while the average market price of lithium grade PVDF was 445,000 yuan / ton, up 304.55% from the same period last year.

Huaan Xincai, a subsidiary of the company, has a production capacity of 20,000 tons of R142b per year and can be sold out of 12650 tons per year. And the company successfully put into production 3000 tons of PVDF in the second half of 2021, R142b is self-sufficient in raw materials, the technical indicators of the products are stable, the production capacity is effectively released, and the capacity utilization rate reaches about 75%. Both of them contributed considerable performance increment to the company in 2021. However, the company's net profit in 2021 is lower than we had expected, and we think the main reason is: 1. During the reporting period, the company totaled more than 130 million yuan in credit impairment losses, asset impairment losses and asset disposal losses, accounting for 38.79% of net profit in 2021. In the fourth quarter, the company carried out equity incentives to the company's executives, core managers and core technical backbone, and confirmed the equity incentive fees, resulting in the company's management expenses as high as 89.78 million yuan in the fourth quarter, an increase of more than 69.08 million yuan compared with the third quarter.

The prices of R142b and PVDF remain high, and the performance in 2022 is expected to continue to rise significantly: in 2022, the rapid release of new energy vehicles continues, and the proportion of lithium iron phosphate batteries continues to increase, the demand for lithium-grade PVDF accelerates, and the prices of R142b and lithium-grade PVDF remain high. According to Baichuan Yingfu data, as of April 19, the average market price of R142b is 180,000 yuan / ton, and the average market price of lithium grade PVDF is 490,000 yuan / ton, which makes the company's performance in the first quarter of 2022 continue to maintain a rapid growth trend. And the company has officially entered the supply chain system of Ningde era, providing it with lithium grade PVDF and R142b products. It not only proves that the company's PVDF quality has been authenticated by authority, but also helps to form a close linkage between supply and demand between the company and the upstream and downstream of the industry, achieve long-term mutual benefit and win-win results, and then improve the company's profitability. In the first half of 2022, the company's PVDF Phase 2 production capacity of 5000 tons / year will soon be put into production, which will also strongly promote the company's performance to maintain a high growth trend. However, considering that since March, outbreaks have broken out again in Shandong, Fujian, where the Ningde era belongs, and Shanghai, where many new energy car factories are located, and many enterprises have periodically stopped production, which may have a negative impact on the production and marketing progress of the company's PVDF and R142b in the short term.

Profit forecast and investment advice: considering that many enterprises have accelerated the layout of PVDF integrated production capacity since 2021, PVDF and R142b will soon usher in a period of concentrated release of new capacity, and subsequent product prices may accelerate back to a rational range with the improvement of supply and demand structure. Adding to the risk that recurrent outbreaks may lead to lower-than-expected downstream demand, we downgrade our profit forecast for 2022-2023 and increase our profit forecast for 2024. We estimate that the company's net return profit for 2022-2024 will be 12.7 pound, 1.48 trillion yuan, respectively, and the corresponding Phand E will be 11.1 pound 9.5 pm 9.4 (corresponding to the April 19 closing price of 12.28 yuan), adjusted to "overweight" rating.

Risk factors: the risk of limited start-up of products affected by environmental protection policies; the risk that the construction schedule of PVDF and other projects is not as expected; the risk of substantial fluctuations in product prices; the risk of lower-than-expected demand caused by the epidemic; the accounting firms issued non-standard audit opinions on some subjects of the company's 2021 annual report, which had a significant impact on the company's business performance in 2021.