Having been deeply involved in the membrane business for 20 years, it has become a leader in nanofiltration and reverse osmosis membranes in China. Wharton Technology is a high-tech enterprise under CRRC that mainly focuses on reverse osmosis membranes and nanofiltration membranes, and is complemented by the use of plant fibers. The company introduced reverse osmosis equipment from the United States in 2001. After 20 years of development, it became a leader in the domestic reverse osmosis membrane field. The company's revenue in 2021 was 1,381 million yuan, +10.10% year on year, and net profit of the mother was 121 million yuan, +14.56% year on year.
With the rise in traditional demand and the release of new scenarios such as lithium extraction in salt lakes, the reverse osmosis membrane market space is expected to reach 11.9 billion yuan/year in 2025. In 2019, the sales volume of reverse osmosis membrane materials nationwide was 7.5 billion yuan. As the scale of reverse osmosis applications in the drinking water and industrial water treatment fields continues to increase. At the same time, considering the release of demand from some new application scenarios such as lithium extraction in salt lakes in the future, we expect the reverse osmosis membrane market to maintain an annual growth rate of 8%. We expect the reverse osmosis membrane sales volume to reach 11.9 billion yuan/year by 2025.
It has been deeply cultivated for 20 years to build four major moats of product+scale+technology+industrial chain. 1) Full product coverage: The products cover multiple fields of household+municipal use+industry. In recent years, the company's industrial films have been rapidly upgraded, and applications in the high-end market have continued to expand. 2) The company has a production capacity of 23.3 million square meters, the largest scale in China, and its cost advantage is remarkable. Currently, the company's reverse osmosis membrane market share has exceeded 11%.
3) The production and development of membrane materials needs to be modified according to different requirements. It requires years of experience and continuous cultivation. The company undertakes a number of national key R&D plans, which are the main carriers of national R&D platforms, and their technical advantages are highlighted. 4) Collaborative development of the whole industry chain. The company relies on CRRC Green and other platforms to develop membrane separation engineering business. At the same time, it is constructing and operating Tiangang's 50,000-ton reclaimed water project downstream to create large-scale model projects for downstream membrane separation applications, driving the company's performance growth.
Accelerated import substitution and capacity expansion drove a sharp rise in volume and price+expansion of the lithium extraction market in Salt Lake, and the company entered a stage of high growth. 1) The technology threshold for reverse osmosis membranes is high. Currently, the market share of foreign-funded enterprises in the market exceeds 70%. With the improvement in the performance and stability of the company's high-end membrane products such as industrial membranes, the combined service response and price advantages are remarkable. The company's import substitution was obvious in the past two years, and the company's industrial membrane sales accounted for 65% in Q1 2021. At the same time, the company introduced Longyuan Environmental Protection, a subsidiary of the National Energy Group, as the second largest shareholder of the company. A large number of power plants and coal chemical plants under the National Energy Group have traditionally used imported membrane. In the future, the company's products and services are expected to be rapidly rolled out by the National Energy Group, thereby speeding up the import substitution process; 2) The company's current capacity utilization rate of 23.3 million square meters has reached 93%, and the company's third phase project will increase production capacity by 4.8 million square meters (+21%) while upgrading the product structure to increase the proportion of seawater and industrial films to achieve a sharp rise in product volume and price; 3) The company's products are already increasing lithium salt lake and other lithium salt lake products; Development of emerging markets Application, along with the improvement in product cost effectiveness and the company's continuous development, the company will further benefit from increased industry space in the future.
Profit forecast and rating: The company's net profit for 2022-24 is estimated to be 154/191/239 million yuan. The current PE valuation corresponding to the stock price is 23/18/15 times, respectively, which is significantly lower than the average valuation of comparable companies 35/27/22 times. We gave the company 35 times PE in 2022, a target market capitalization of 5.4 billion yuan, a target increase of 54%, coverage for the first time, and a “buy” rating.
Risk warning: The progress of import substitution fell short of expectations; orders from emerging markets such as salt lake lithium extraction fell short of expectations.
