occurrences

The company released its 2021 annual report: it achieved revenue of 4.115 billion in '21, +77.18% year on year, and achieved net profit of 824 million yuan to the mother, +109.67% year on year; deducted non-net profit of 818 million yuan, an increase of 114.12% over the previous year.

Quarterly Report 2022: The company achieved revenue of 890 million in Q1 2022, -3.86% year on year; achieved net profit of 129 million yuan, or -36.89% year on year; achieved net profit of 128 million yuan, or -36.83% year on year.

Brief review

The company's performance increased significantly in 2021, and profitability increased. Under difficult challenges such as repeated epidemics, the company effectively hedged sharp contraction in upstream production capacity and sharp price fluctuations in the phosphorus industry chain. It achieved revenue of 4.115 billion yuan in 21, +77.18% year on year, and achieved net profit of 824 million yuan to the mother, +109.67% year on year; deducted non-net profit of 818 million yuan, an increase of 114.12% over the previous year. Affected by the shortage of flame retardants since 2021, the company's product prices have continued to rise. The average price of the company's flame retardant products in '21 was 30,000 yuan/ton, up 41.3% from 2020, and sales reached 128,000 tons, up 33.2% from 2020 (96,000 tons); the sales prices of amine additives, catalysts, and paint additives in 2021 were 28,000 yuan/ton and 18,000 yuan/ton respectively, up 21.0% and 32.2% from the previous year. The sales volume of the two was 25,000 tons and 9746 tons, respectively, up 21.0% and 32.2% from the previous year. 3.9% and 97.3%. In Q1 2022, the company achieved revenue of 890 million, -3.86% year on year and -15.02% month on month; it achieved net profit of 129 million yuan, -36.89% year on year and -35.65% month on month.

Based on the entire flame retardant industry chain, we joined forces with strategic partners to accelerate the construction of the Shandong project. The company currently has an actual production capacity of 128,000 tons of flame retardants (including 50,000 tons of polyurethane series flame retardants, 78,000 tons of engineering plastic flame retardants), 25,000 tons of amine additives, 10,000 tons of catalysts, and 40,000 tons of paint additives (industrial epoxy curing agents, diluents). As new production capacity is put into operation one after another, the company's market share will continue to increase. It will continue to benefit from a sharp rise in volume and price in the flame retardant market, and endogenous growth is strong. Looking ahead, in order to seize the industry's opportunity period, the company plans to continue to add flame retardant production capacity and accelerate the flame retardant project in Shandong. At the beginning of '21, the company plans to raise no more than 1.57 billion yuan to invest in the construction of Shandong Wansheng's “Integrated Production of 319,300 Tons of Functional New Materials (Phase I)” project. It passed the EIA on October 30, 2021, and plans to build 70,000 tons of phosphorus oxychloride per year, 100,000 tons of high-end epoxy resins and additives, 293,000 tons of surfactants by 2023, adding 120,000 tons of new materials (flame retardants) 70,000 tons of green polyurethane flame retardants, 50,000 tons of green engineering plastics flame retardants), adding 112,000 tons of new material flame retardants and special flame retardants by 2025. At that time, the total production capacity of flame retardants will be 340,000 tons, which is about three times the company's current production capacity. It will help open up space for future fine chemicals growth, and the company's advantages in scale and integration will also become more stable.

The green environmental protection market empowers the amine additives, catalysts, and paint additives business to benefit. The company's amine additives division collaborated deeply with the high-end Israeli product Ahava acquired by Fosun and the Nikka Research Institute established by Fosun. The downstream of amine additives is mainly used in high-end daily-use chemicals. Affected by the COVID-19 pandemic, global demand for hand sanitizers, disinfectants and bacteriostatic personal care products grew rapidly, leading to an increase in demand for quaternary ammonium salt and fatty amine series products, and the company's product supply was in short supply. The company's amine product production capacity continued to expand as demand grew. The second-tier subsidiary Jiangsu Wansheng produced 27,000 tons of fatty amines and their derivatives (including electronic grade trioctylamine, alkyl tertiary amines, quaternary ammonium salts) technical improvement project on March 24, 2021. As the Wansheng Dawei Phase II project is completed and put into operation, the company will continue to expand the production capacity of fatty tertiary amines and derive downstream on this basis, adding 10,000 tons of quaternary ammonium salt production capacity. In terms of paint additives, the company's paint additives are bio-based polymer materials, and the raw materials are bio-renewable resources such as cashew shell oil and dimeric acid. They can be widely used in ships, marine engineering, offshore wind power, bridges, petrochemicals and other fields. The anticorrosive use of paint additives is used in supporting scenarios. There is a foundation for broadening the market, and has the dual effects of protecting the environment and saving resources, which meet China's carbon neutrality and related policy requirements. The company actively laid out the paint additives business, and the paint additives business was put into use in October 2019. Since it was put into production, product prices and sales have risen steadily. The company sold 230 tons of additives in 2019, the production capacity of paint additives was gradually released in 2020, sales exceeded 40,000 tons, and sales reached 0.97 million tons in 2021, an increase of 97.26% over the previous year. The company strives to become one of the main suppliers in the industry within the next 2 years.

Downstream demand for flame retardants is strong, and new energy vehicles, 5G, and European halogen-free regulations are boosting industry sentiment. With the recovery of the European and American economies and the gradual recovery of the global automobile industry, the recovery in global demand for flame retardants and the sharp increase in global trade demand led to a situation where it was difficult to find a box in shipping. As a result, flame retardant exports fell, global supply and demand were unbalanced. With the rapid development of energy vehicles and the construction of new infrastructure such as 5G base stations, and the introduction of European halogen-free regulations, the market demand for engineering plastics was strong. Domestic demand for engineering plastics was strong. Due to safety and environmental upgrades, BDP production capacity growth was limited, and supply and demand were unbalanced. According to statistics, the production capacity of phosphorus-based flame retardants used in new energy vehicles is 160,000 tons, while demand has reached 190,000 tons. There is a gap of 30,000 tons. The company put into operation a new 20,000 ton BDP production line in July 2020. Currently, it has a BDP production capacity of 65,000 tons, with a global market share of nearly 40%. It is a leading enterprise in the industry, benefiting from the increase in BDP demand brought about by the development of the NEV industry. Furthermore, Shandong Wansheng's integrated functional materials project with an annual output of 319,300 tons includes a 50,000 ton polymerizer project. After production is put into operation in 23, it will further stabilize the company's position as a leading enterprise.

Deploy electrolyte additives and conductive materials to expand the new material product line. In November 2021, the company announced that it invested in Zhongzhou, Fujian. The company, equity incentive platform and follow-up investment platform increased capital of Fujian Zhongzhou by 11 million yuan with a pre-investment valuation of 47 million yuan. After the capital increase, it directly held 46.05% of shares in Fujian Zhongzhou, 20.51% through the equity incentive platform, and the company held a total of 66.56% of shares. On February 25, 2022, Fujian Zhongzhou completed the registration procedures for industrial and commercial changes related to the capital increase of Wansheng Co., Ltd. On the same day, the company paid 297.93 million yuan to Fujian Zhongzhou, holding 60.6% of Zhongzhou's shares. Zhongzhou, Fujian, plans to build a new lithium ion electrolyte additive and conductive material project in Sanming. It plans to build 15 products with an annual output of lithium-ion electrolyte additives and new conductive materials, totaling 95,500 tons of production equipment and supporting facilities, office buildings, R&D buildings, etc. The project was completed in two phases: the first phase has a production capacity of 20,500 tons, including 5000 tons/year VC; 5000 tons/year FEC; 1500 tons/year DTD; 7,500 tons/year NNP; 200 tons/year VEC; 200 tons/year MMDS; 200 tons/year DENE; 200 tons/year DENE; 100 tons/year TMSP; 100 tons/year TMSB; 500 tons/year 1,3-PS; 200 tons/year BOB, with a construction period of 2 years (December 2021 to December 2023), with a total investment of 450 million yuan; the second phase of the project plans to expand production to 95,500 tons. The specific progress depends on market conditions after the first phase is put into operation. The company's lithium battery materials-related projects will further extend the company's industrial chain layout, broaden the new materials product line, and enhance the company's overall competitiveness and profitability.

Profit forecast and valuation: The company's net profit for 2022, 2023, and 2024 is estimated to be 6.6, 850, and 1.05 billion yuan respectively. The corresponding PE is 11.1X, 8.6X, and 7.0X respectively, maintaining the “buy” rating.

Risk warning: Prices of raw materials are rising, and the commissioning of the project falls short of expectations.