Polyurethane integration project opens the space, TPU industry leader Yueyue Longmen. The company is the only domestic gem listed company with TPU as its main business, which has been deeply cultivated in the TPU industry for more than a decade, and the core team holds the equity of the listed company. The growth rate of the TPU industry is about 12%, while the company maintains a sales growth rate of 22%, and its products are highly competitive. At the same time, the 200000-ton fund-raising project will be partially put into production in 2023, and the company will get rid of the capacity bottleneck and further enhance its development potential. In addition, the company extends upstream and plans the polyurethane integration project. after it is put into production, the company will become an integrated enterprise of the TPU industrial chain, and strive to achieve the dragon gate development of carp.

TPU has a broad market space, product structure optimization to improve profitability. As a new environmental protection material with the advantages of high elasticity of rubber and easy processability and yellowing resistance of plastics, TPU is an ideal substitute for traditional materials such as PVC, rubber, EVA, silicone and so on. The company's product types include general polyester type, special polyester type, polyether type, foam type and other types of TPU products. The company focuses on differentiation competition strategy, focuses on joint research and development with downstream customers, and continues to optimize the product structure. The sales revenue of special products has increased from 39.82% in 2017 to 61.89% in 2019, and its gross profit margin has increased from 18.18% in 2017 to 24.31% in 2019, exceeding the industry level. By the end of 2021, the company has obtained a total of 58 patents and independently developed high-end products such as foamed TPU and invisible car and clothing materials. In addition, the company established a new subsidiary Meirui Shanghai in 2022, focusing on the application of TPU materials in the automotive industry and related fields, and gradually enhance the automotive market space.

Fund-raising projects help double production capacity and are expected to get rid of capacity bottlenecks. According to the data of the forward-looking Industrial Research Institute, the CAGR of the domestic industry in 2016-2020 was 12%, and the company's sales growth rate was 22% in the same period, which is substantially ahead of the industry. By the end of 2021, the company has a TPU production capacity of 85000 tons, second only to Wanhua Chemical (190000 tons) and Huafeng Chemical (160000 tons). It is currently under construction with a production capacity of 200000 tons, which is expected to get rid of the production bottleneck and become a leading enterprise in the industry after putting into production; in addition, the company and Henan Hebi Coal Chemical Company have also entered the trial production stage of the PBS project.

The polyurethane integration project will help the company to realize the integrated development of the industrial chain. Recently, the HDI project of Henan Meirui, a subsidiary of the company, has obtained the procedures of environmental assessment and energy assessment. the first phase of the project plans to invest 1.5 billion yuan to build 120000 tons of special isocyanate capacity, including 100000 tons of HDI, 15000 tons of CHDI and 5000 tons of PPDI. After the project is put into production, the company will become the seventh mainstream HDI manufacturer in the world. With the localization of adiponitrile, the production cost and price of HDI are expected to decline, driving water-based coatings to replace oily coatings, further improve the permeability and open up the market space in the new energy field of wind power, photovoltaic wind power and other high-end coatings. In addition, HDI as the upstream of TPU, with the commissioning of Henan HDI project, the company makes up for the shortcomings of raw materials, opens up the whole industry chain of TPU, realizes integrated development, greatly enhances its TPU product competitiveness and development autonomy, drives the TPU industry into the fast lane, and accelerates the growth of market scale.

Profit forecast, valuation and investment rating: it is estimated that the company's net profit from 2022 to 2024 will be RMB1.48kg, an increase of 24% over the same period last year, with an increase of 24%, 74%, 154% and 0.74% respectively. Based on the closing price on 2022-8-9, the corresponding PE is 42.1, 24.2, 9.5 times. Cover for the first time, giving a "buy" rating.

Risk hints: the risk of raw material price fluctuation, the risk of capacity delivery falling short of expectations, the risk of lower-than-expected demand, the risk of untimely updating of third-party databases, and the risk of intensified competition in the industry.