The company is a leading enterprise of lithium battery electrolyte solvent. The main products include dimethyl carbonate, propylene carbonate, lithium hexafluorophosphate, special additives for electrolyte and MTBE. Carbonate products are used together with lithium hexafluorophosphate and additives to produce lithium battery electrolyte, which is the key material for lithium battery production. The company's downstream lithium battery products are mainly used in new energy vehicles, 3C digital and energy storage, and there is a strong demand in recent years.

The company's revenue and profitability increased significantly in 2021. In 2021, the company achieved an operating income of 7.056 billion yuan, an increase of 57.67% over the same period last year, and a net profit of 1.178 billion yuan, an increase of 353.60% over the same period last year. The gross profit margin of the company's main product dimethyl carbonate series is 48.87%, an increase of 16.28pct over the same period last year. The substantial increase in operating income and profitability of the company benefited from the explosive growth of the downstream new energy vehicle market, which led to an increase in demand for upstream lithium batteries and their raw materials, the company fully seized the market opportunities and focused on strategic customers, and the related products remained at full capacity. Production and sales are booming. At the same time, the tight market supply and demand of the company's related products led to the price keeping high and the company's gross profit margin increased.

The company actively distributes liquid lithium salts, silicon-carbon anodes, wet electronic chemicals and other new material products. In terms of electrolytes, the company plans to invest in projects with an annual production capacity of 300000 tons and 200000 tons in Dongying and Wuhan, with a total planned investment of 1.6 billion yuan and 1.224 billion yuan respectively, which are expected to be completed and put into production in February 2023 and October 2023 respectively. The company plans to invest 2.15 billion yuan to produce 200000 tons of electrolyte and its supporting project (Meishan) is also expected to be completed and put into production in December 2023. In the future, the company's electrolyte production capacity will continue to expand. In terms of the horizontal layout of lithium materials, the company plans to invest 1.243 billion yuan in the construction of an integrated project of production and research of 220,000 tons of lithium materials per year, with an expected total construction period of 24 months and is expected to be completed and put into production in 2024; holding subsidiary Wenghua New Energy plans to invest 611 million yuan in the annual production of 100000 tons of liquid lithium salt project, the construction period is 15 months, is expected to be completed and put into production in February 2023. Shenghua New Energy Technology (Dongying) Co., Ltd., a wholly owned subsidiary of the company, has invested 356 million yuan and 372 million yuan respectively in the annual production of 11000 tons of additives and 50,000 tons of wet electronic chemicals, which are expected to be completed and put into production by the end of 2023 and August 2024, respectively. Joint venture subsidiary Shenghua New Materials Technology (Meishan) invested 1.102 billion yuan in the annual production of 30,000 tons of silicon-based anode materials, which is expected to be put into production in April 2024.

After each project is completed and put into production, the company will form a rich lithium material product matrix.

Profit forecast and investment advice. The company is building more lithium materials projects, with the release of future production capacity, performance is expected to continue to grow. We estimate that the EPS of Shida Shenghua in 2022-2024 is 7.60,9.21,12.00 yuan respectively. With reference to the comparable company's valuation level, its 2022 performance is given 17-19 times PE, corresponding to a reasonable value range of 129.20-144.97 yuan, with a "better than big city" rating for the first time.

Risk hint. The progress of the project under construction is not as expected, the downstream demand is not as expected, and the project approval progress is slow or can not be passed.