Affected by the conflict between Russia and Ukraine, the European energy crisis and other factors, overseas demand for flame retardants is weak. The company's performance declined in the first half of 2022 compared with the same period last year, and its operating income in the first half of 2022 was 1.795 billion yuan, down 8.12% from the same period last year. Net profit belonging to shareholders of listed companies was 239 million yuan, down 44.25% from the same period last year. A number of follow-up projects under construction are expected to contribute to growth and maintain the buying rating.
Support the main points of rating
Performance declined compared with the same period last year. The company released its mid-2022 report that its operating income in the first half of 2022 was 1.795 billion yuan, down 8.12 percent from the same period last year; the net profit belonging to shareholders of listed companies was 239 million yuan, down 44.25 percent from the same period last year; and the net profit after deducting non-recurring profits and losses was 235 million yuan, down 44.8 percent from the same period last year. Among them, the operating income in the second quarter was 905 million yuan, down 11.95% from the same period last year, the net profit was 111 million yuan, down 50.90% from the same period last year, and 106 million yuan was deducted from the same period last year, down 52.08% from the same period last year.
Product prices rose slightly compared with the same period last year, and the average price of flame retardants declined in the second quarter. Affected by the conflict between Russia and Ukraine in the first half of 2022, the energy crisis in Europe, high inflation in Europe and the United States, and repeated domestic epidemics, the market demand for flame retardant downstream cars, electrical appliances, communications equipment and so on is weak. In the first half of 2022, the average price of the company's flame retardant products rose 1.53% compared with the same period last year, of which the average price in the second quarter decreased by 11.18%; the average price of amine auxiliaries and catalysts increased by 60.65% compared with the same period last year; and the average price of paint auxiliaries increased by 33.45%. In terms of production and marketing, in the first half of 2022, the external sales of flame retardant products decreased by 4.23% compared with the same period last year, the external sales of amine auxiliaries and catalysts decreased by 0.45%, and the external sales of paint auxiliaries decreased by 2.49%. Among them, the company at this stage of the main profitable product flame retardant BDP affected by weak overseas demand, prices fell sharply, dragging down the main performance. We believe that overseas demand may recover during the World Cup and traditional holidays in the fourth quarter, sales of flame retardant products may pick up and profits will improve.
A number of projects under construction are being carried out as planned. After years of technological breakthroughs and product expansion, the company has launched a number of new projects since 2018. Including "annual output of 48000 tons of high-efficiency and environment-friendly flame retardants, cashew phenol series production project", "annual output of 101500 tons of high-efficiency environment-friendly flame retardants, 44000 tons of cardanol series products technical transformation project", "Jiangsu Taixing plant second phase production project of 27000 tons of aliphatic amine and its derivative products", "annual production project of 319300 tons of functional new materials", etc. This part of the production capacity is expected to be put into production in 2022-2024 to release performance, and the company's revenue scale is expected to continue to increase. In addition, the company acquired 70% stake in Shandong Hanfeng in May 2022. Shandong Hanfeng "annual output of 175000 tons of phosphorus series new materials, 10 tons of deuterated reagents and 850 tons of electronic grade new materials project" in the annual output of 100000 tons of phosphorus trichloride, 60,000 tons of phosphorus trichloride, 60,000 tons of phosphorus pentachloride and other production lines have entered the stage of trial production, with the production line capacity climbing, it is expected to bring increment to the company's performance in the second half of the year.
Valuation
Affected by the weak demand for flame retardants and falling prices, the profit forecast is lowered, and the earnings per share from 2022 to 2024 are expected to be 0.86yuan, 1.30yuan and 2.26yuan, respectively, and the corresponding PE are 18.7,12.4and 7.2times respectively. Taking into account the gradual production of a number of projects under construction, flame retardant prices are expected to pick up in the fourth quarter, maintaining the buy rating.
Main risks faced by rating
The risk of epidemic situation in the place where the company is located, the risk of postponement of projects under construction, and the price of raw materials fluctuate greatly.
