Main points of investment

Domestic PCB chemicals leader, layout lithium materials and power battery recycling company's business includes PCB chemicals, chemical reagents and lithium battery materials and other special chemicals. In 2021, the company achieved revenue of 2.58 billion yuan, an increase of 28.09 percent over the same period last year, and a net profit of 62.3 million yuan, an increase of 72.40 percent over the same period last year. In the first half of 2022, the company is expected to achieve a net profit of 0.78-83 million yuan, an increase of 159.6% to 176.2% over the same period last year, mainly due to the release of the company's new production capacity, cost reduction and product structure optimization.

The prospect of power battery recycling is broad, the company's technology and production capacity layout is ahead of China's high-quality lithium resource endowment is relatively limited, the degree of import dependence is high, lithium recovery will become an important source. We estimate that the decommissioning of power batteries in China will be 14.64,30.19 and 463.19GWh respectively in 2022, 2025 and 2030, which will provide a large number of raw materials for lithium battery recycling. With the breakthrough of wet recovery technology in the industry, the recovery rate of lithium can reach 90%, and the recovery economy of lithium iron phosphate battery has been improved. The company's recovery process has reached the advanced level of the industry, and the Shantou 10, 000-ton lithium iron phosphate recovery line will be put into production in the second half of the year, and a comprehensive recovery production line of 50, 000 tons of iron phosphate and 11500 tons of lithium carbonate is being built in Zhuhai.

PCB Chemicals: domestic replacement acceleration, the company grasps the middle and high-end market global PCB production focus to Chinese mainland, high-end products are mainly monopolized by technologically advanced American, Japanese and European companies. The company is one of the few domestic enterprises with high-end PCB chemical market ability, focusing on the production of high-purity chemicals and compound chemicals, covering all wet processes in the PCB manufacturing process, the company achieves independent supply of chemical copper deposition and electroplating copper in the PCB process, and there are no other domestic competitors.

Chemical reagents: the company started its business and expanded its production capacity to meet the downstream demand. Ultra-clean and high-purity reagents are key chemical raw materials for integrated circuits, and the market scale is expected to grow rapidly. The company's chemical reagent products include analytical and special reagents, including ultra-clean and high-purity chemical reagents. In 2020, the chemical reagent production capacity of the company expanded from 12000 tons to 20, 000 tons. The new production capacity effectively alleviated the shortage of chemical reagent production capacity. In 2021, the revenue of chemical reagent business reached 310 million yuan, a year-on-year growth rate of 23%.

Profit Forecast and valuation Company is the leader of PCB chemicals in China. Lithium battery recycling business will benefit from the approaching peak of power battery decommissioning. It is estimated that the return net profit of the company from 22 to 24 is 2.42,4.59 and 712 million yuan, and the corresponding EPS is 0.61,1.17,1.81 yuan per share, and the corresponding PE of the current stock price is 36,19,12 times respectively. We select Green Mei, which is engaged in power battery recycling, Zhongwei / German Nano / Fulin Seiko, and Dinglong, which is engaged in electronic chemicals, as comparable companies. From 2022 to 2024, the average PE of the same industry is 42,28 and 20 times respectively. We give the company 28 times PE in 2023, corresponding to a market capitalization of 12.9 billion yuan and a target price of 32.70 yuan, corresponding to 46% of the current market capitalization. Cover for the first time, giving a "buy" rating.

Investment case

Profit forecast, valuation and target price, rating

(1) profit Forecast: we estimate that the return net profit of the company from 2022 to 2024 is 2.42,4.59 and 712 million yuan, and the corresponding EPS is 0.61,1.17,1.81 yuan per share, respectively, and the corresponding PE of the current stock price is 36,19,12 times respectively.

(2) valuation indicators: we select Green Mei, which is engaged in power battery recycling, Zhongwei / German Nano / Fulin Seiko, and Dinglong, which is engaged in positive materials, as comparable companies. From 2022 to 2024, the average PE of the same industry is 42,28 and 20 times respectively. We give the company 28 times PE in 2023, corresponding to a market capitalization of 12.9 billion yuan and a target price of 32.70 yuan, corresponding to 46% of the current market capitalization.

(3) Target price: 32.7 yuan.

(4) Investment rating: covered for the first time, given a "buy" rating.

Key hypothesis

(1) from 2022 to 2024, the global LCE equivalent demand for lithium batteries is 34.5,49.7 and 703000 tons respectively.

(2) from 2022 to 2024, the LCE equivalent demand of lithium battery in China is 17.3,24.8 and 352000 tons respectively.

(3) from 2022 to 2024, the recovery capacity of lithium iron phosphate is about 0.4,2.0 and 61000 tons.

The difference between our views and those of the market

(1) the market thinks that it is difficult for the company to get the goods at the end of the raw materials. Basis: after the 50, 000-ton lithium iron phosphate recovery line in Zhuhai is put into production, the demand for raw materials is large, and the raw materials are mastered by the battery factory or mainframe factory.

We believe that: the company's leading level of technology, can ensure the supply of raw materials. According to: the company takes the lead in the recovery layout of lithium iron phosphate, chemical purification, mastering the whole process of recovery, disassembly and crushing, the recovery rate of lithium carbonate is higher than the industry level, and the recovery of iron phosphate already has higher economy. higher economy and recovery means higher bargaining space, the company actively cooperates with automobile battery factories, and has made some progress, and the closed loop of battery recycling is gradually opened.

(2) the market believes that the price of lithium materials may experience a significant decline, affecting the company's profits. According to: the company's lithium materials recycling needs a large-scale release in 2024, the price of lithium materials is difficult to predict.

We believe that: according to the profit forecast of production capacity under construction, the company's performance growth is flexible. According to: new energy vehicle market demand is strong, lithium carbonate and other key materials supply and demand mismatch may continue, material prices are expected to decline within 1-2 years is limited; at the same time, the company's current production capacity is still small, with Shantou 10,000 tons and Zhuhai 50,000 tons of LFP recovery line completed and put into production, even if material prices encounter a certain decline, and large-scale production after the cost line still has a larger profit space, performance growth elasticity.

The catalytic factor of the rise of stock price

Xinneng car demeanor and lithium cathode demand exceeded expectations, the company's production capacity construction speed exceeded expectations, new customers and new orders exceeded expectations.

Risk hint

The risk of new product and new technology development; the intensified competition in the recycling industry; the risk of material price fluctuation.