1Q22 performance is in line with our expectations

The company announced 1Q22 results: operating revenue of 4.505 billion yuan, an increase of 7.9% over the same period last year, an increase of 10.1% over the previous month, and a net profit of 470 million yuan, a decrease of 56.1% and an increase of 27.7% over the same period last year. The net profit of deducting non-return fell 27.9% to 554 million yuan compared with the same period last year. The performance is in line with our expectations. The decline in non-homing profits compared with the same period last year is mainly related to the low price of dyes and the rising cost of raw materials. In addition, the profit and loss from fair value changes and the investment income from the disposal of financial assets have a greater impact on the decline in net profit compared with the same period last year, with an annual 1Q21 of 165 million yuan (2Q21 is-397 million yuan).

Trend of development

The terminal demand continues to pick up, which is good for the global demand for dyes. According to the data of the National Bureau of Statistics, the output of printing and dyeing fabrics produced by enterprises above the scale of the printing and dyeing industry from January to February 2022 was 7.044 billion meters, an increase of 5.94 percent over the same period last year. The output of printed and dyed fabric maintained growth on the basis of a high base in the same period last year, and the production scale reached a new high in the same period of nearly 5 years. According to Chinese customs statistics, from January to February 2022, the export volume of eight categories of printing and dyeing products was 4.994 billion meters, an increase of 6.87 percent over the same period last year; the export value was 5.37 billion US dollars, an increase of 19.26 percent over the same period last year; and the average unit price of exports was 1.08 US dollars per meter, an increase of 11.59 per cent over the same period last year. On the one hand, it is due to the rise in raw material prices and freight prices to push up the export unit price of products, on the other hand, due to the continuous pick-up of demand in the international market. We believe that the terminal demand continues to pick up, which is good for the global demand for dyes. Due to the intensification of competition in the domestic dye market, the dye price is at the bottom. As of April 28, 2022, the price of disperse / reactive dyes in Jiangsu and Zhejiang is 24500 RMB 24000 yuan / ton respectively. We believe that dye prices are still fluctuating at the bottom in the short term.

The company's supporting advantages of the whole industry chain are highlighted. The company realizes the extension of the whole dyestuff industry chain, resorcinol, m-phenylenediamine, reductant, m-acid and H-acid to achieve self-supporting, and enhance the leading power of the dye industry.

We believe that the company is expected to continue to expand the market share of dyes and further consolidate its leading position in the industry.

The real estate business has entered the harvest period. The company focuses on the Shanghai regional real estate market. The Huaxing New Town project has completed the land adjustment and received approval, and the construction has started on February 15, 2022. The company estimates that the total investment of the project is 25 billion yuan. The residential housing in the high-level area of the Longsheng Fuxinli project was completed in 2021. We believe that the Longsheng Fuxinli project is expected to be delivered within 2022, recognizing revenue and expected to contribute profits, and the real estate business has entered the harvest period.

Profit forecast and valuation

Keep profit forecasts for 2022 and 2023 unchanged. The current share price corresponds to a price-to-earnings ratio of 7.9 times 2023 / 7.6 times 2023. The company's real estate business entered the harvest period, maintaining an outperforming industry rating and a list price of 15.50 yuan, corresponding to 12.4 times 2022 price-to-earnings ratio and 12.0 times 2023 price-to-earnings ratio, which has 56.9% upward space compared with the current stock price.

Risk.

The demand for dyes is lower than expected, the production capacity of dyes / intermediates is greatly expanded, and there is a risk that the market will decline significantly.