Focus on the layout of the entire ultra-high molecular weight polyethylene fiber industry chain. The company was founded in 1999 and belongs to the National Development and Investment Corporation. It is one of the first domestic enterprises to master a complete set of ultra-high molecular weight polyethylene fiber production technology and achieve the industrialization of ultra-high molecular weight polyethylene fibers earlier. The company's main products are ultra-high molecular weight polyethylene fibers and their composites (weightless cloth and bulletproof products), which have achieved the overall industrial chain layout of the ultra-high molecular weight polyethylene fiber industry. According to the company's 2021 annual report, at the end of 2021, the company's ultra-high molecular weight polyethylene fiber production capacity was 3,320 tons, with an output of 3,406 tons, ranking second in China. In the future, the company's production capacity will expand steadily, and its contribution will increase.
The bulletproof equipment market is booming, and earnings increased dramatically in 2022. In 2017-2021, the company's revenue was basically stable at 278-331 million yuan, the net profit of the mother stabilized at 41-57 million yuan, and the gross margin remained at 32%-34%. According to the company's 2022 performance report, the company is expected to achieve operating income of 616 million yuan in 2022, +86.26% year on year; net profit of the mother is expected to be 172 million yuan, +226.74% year on year.
The company's profit is expected to increase dramatically, mainly due to the high boom in the bulletproof equipment market. The company is actively adjusting its product structure and increasing the development of the composite materials market while guaranteeing orders from major customers in the civilian market. Both ultra-high molecular weight polyethylene fibers and composites have achieved an increase in gross margin and sales revenue.
Self-construction+acquisition to expand the production capacity of ultra-high molecular weight polyethylene fibers. By the end of 2021, the company had an ultra-high molecular weight polyethylene fiber production capacity of 3,320 tons/year, and the 2,240 tons production capacity under construction is expected to be completed and partially put into operation by the end of 2023. In addition, the company increased capital to Yancheng Youhebo New Materials Co., Ltd. by 180 million yuan and obtained 70% of Youhebo's shares. Youhebo has obtained the construction procedures for the 3000 tons/year ultra-high molecular weight polyethylene fiber project and completed the design and construction of the plant and public engineering facilities according to the layout requirements of the 3000 ton production line. The first phase has an annual production capacity of 1000 tons, the second phase is expected to start production in the first half of 2023, and the third phase is expected to have a production capacity of 1000 tons in 2023.
Composites production capacity is expanding steadily. By the end of 2021, the company's non-woven fabric production capacity was 300 tons/year, and the non-woven fabric project reached production in the first half of 2022. It is expected that 500 tons of additional production capacity will be put into operation by the second quarter of 2023. In terms of downstream products, according to the company's prospectus, after the completion of the “Bulletproof Weatherproof Fabrics and Products Industrialization Project” project, the company will reach a total production capacity of 500,000 bulletproof chest inserts and 180,000 helmets per year.
Profit forecasts and investment ratings. We expect the company's net profit to be 1.7, 2.4, and 30 billion yuan respectively in 2022-2024, EPS of 0.76, 1.08 and 1.34 yuan respectively, and BPS of 6.29 yuan in 2023.
Referring to the valuations of comparable companies, according to 2023 PE 22-25 times, a reasonable value range of 23.76-27.00 yuan (corresponding to 2023 PB 3.8-4.3 times) was given, covering the “superior market” rating for the first time.
Risk warning: The progress of putting new production capacity into operation fell short of expectations; industry sentiment declined, etc.