Investment highlight

Covering Shanghai Tianyang (603330) for the first time, it gives the industry a rating of outperforming industry, with a target price of 12.80yuan, corresponding to 18 times Pmax E in 2023. The company is the leading enterprise of thermoplastic polymer adhesive materials in China. We believe that the company has formed a better competitive advantage in the dimensions of R & D strength, product matrix and customer resources, and is optimistic about the future driven by endogenesis and extension. The development prospect of stepping into a period of rapid growth. The reasons are as follows:

Downstream application scenarios continue to expand, and multi-point flowering drives the continuous growth of the industry. 1) Adhesives: the global adhesive market grew from US $24.6 billion to US $63.2 billion in 2011-2020, with CAGR reaching 11.05%. Hot melt adhesive, photovoltaic film and electronic adhesive subdivision tracks maintained a high level of prosperity.

Environmental protection policy, import substitution to accelerate the clearance of small and medium-sized enterprises, the share is expected to be concentrated to the head. 2) Wall cloth: the market size of China's wallpaper wallcloth is about 12.24 billion yuan in 2020. Consumption upgrading promotes the continuous high-end wall decoration materials, and the proportion of wallcloth sales in wallpaper wallcloth increased from 6.4% in 2014 to 74.7% in 2020. Leading enterprises with advantages in products, channels, brands and other dimensions are expected to continue to gain market share.

Strong R & D strength, diverse product matrix, high-quality customer resources to build the company's moat. 1) strong R & D strength: the company's R & D genes are strong, based on the technological innovation of thermoplastic environmentally friendly bonding materials, and consolidate the technological foundation through the integrated development of industry-university-research. 2) Product matrix diversity: based on the advantages of technology and production capacity accumulated in the hot melt adhesive field, the company continues to expand downstream, successfully creating high-growth business such as photovoltaic film, electronic adhesive and wall cloth, and perfecting the multi-product matrix. 3) quality customer resources: industrial companies continue to expand market share by relying on leading customers in hot melt adhesive, photovoltaic film and electronic glue industries; consumer companies have a trinity layout of offline stores, online channels and high-end properties to effectively reach B-end and C-end customers.

Endogenous + epitaxial two-wheel drive, hot melt glue faucet can be expected in the future. 1) Endogenous growth: the company plans to rapidly expand its production capacity and continue to plough photovoltaic, wall cloth and other high-prosperity racing tracks. In the context of the rising demand for downstream photovoltaic installation and continuous infiltration of wall cloth, the company's new production capacity is expected to be digested smoothly, supporting the company's sustained and rapid growth. 2) extension mergers and acquisitions: the company has a strong ability to integrate resources, and realizes complementary resources and coordination of resources based on the company's own technology, manufacturing and channel advantages. in the future, it is expected to achieve category expansion and drive sustainable growth through active extension mergers and acquisitions.

What is the biggest difference between us and the market? We believe that the market underestimates the growth prospects of the company's photovoltaic film and wall cloth business, and the overall competitive advantage and scarcity of the company as a hot melt adhesive leader for multi-business coordinated development.

Potential catalysts: rapid growth of downstream demand, smooth landing of production capacity, continuous promotion of profit forecasting and valuation by epitaxial mergers and acquisitions

We estimate that the company's EPS in 2022 and 2023 will be 0.32 yuan and 0.72 yuan respectively, and the CAGR will be 48%.

For the first time, the coverage gives the industry a rating of outperformance, giving the company 18 times Ppica E in 2023, with a target price of 12.8 yuan, corresponding to 40% upside space.

Risk

Terminal demand is lower than expected; new capacity is not as expected; raw material prices fluctuate; cash flow risk.