An industry leader with a full range of high-quality, comprehensive supply solutions. The company is one of the most complete suppliers of rubber additive products in the world. After establishing the National Rubber Additives Engineering Technology Research Center based on the company in 2007, the company developed and industrialized a series of new products, including niche products such as anti-scorch agent CTP, continuous insoluble sulfur, green process enhancers, high-value small varieties of PK900, TBSI, and homogenizers, etc., forming six major product systems including standard rubber chemicals, pre-dispersed rubber chemicals, insoluble sulfur, processing additives, rubber protective wax, resins, etc. In the first three quarters of 2022, the company achieved revenue of 2,697 million yuan, an increase of 34.7% over the previous year, and achieved net profit of 439 million yuan to the mother, an increase of 78.2% over the previous year. Benefiting from the increased profitability of the anti-scorching agent CTP, gross margin for the first three quarters of 2022 increased by 4.95 pct to 27.78% compared to 2021.
The recovery in the downstream bottom boosts demand for additives, and the intensification and greening of the industry favors profit recovery. Nearly 90% of rubber additive applications in the rubber additives industry are automobile-related, and about 70% of demand is used in tire production. With downstream recovery, the tire operating rate bottomed out. On March 2, 2023, the operating rate for semi-steel tires was 73.85%, an increase of 0.19pct over the previous month, an increase of 13.46 pct over the previous year; the operating rate of all steel tires was 69.33%, an increase of 0.44 pct over the previous month, an increase of 11.85 pct over the previous year.
The number of days of tire inventory circulation also showed a downward trend, which is expected to boost demand for rubber additives. In addition, the rubber additives industry is moving towards intensive and green development, and the profitability of the company's main products is expected to pick up as the supply and demand pattern of the industry segment improves: the CTP industry's share of production capacity and profitability stabilizes at a high level; the continuous insoluble sulfur process has significant advantages and may benefit from high-end downstream development; the cleaning level of accelerator processes is leading the world, and the company's profitability is expected to recover as the industry's environmental protection standards increase to reduce excess production capacity.
The reserve is rich and multi-point layout opens up room for long-term growth. Relying on cross-sales advantages, the company invested in the construction of 35,000 tons of phenolic resin, 10,000 tons of adhesive HMMM, 55,000 tons of silane coupling agents, 15,000 tons of organic peroxides and 40,000 tons of hydrochlorosilicon, and leverages rich R&D reserves to lay out healthy and new energy products. It is expected that the company's ongoing projects will significantly increase revenue and profits, help the company enter other downstream new products, and enhance the company's resilience to risks.
Investment advice. Considering that the company is a leading manufacturer of comprehensive rubber additives, the rich projects under construction are expected to be concentrated in 24. It is estimated that the company's earnings per share in 2022-2024 will be 1.33, 1.52, and 1.97 yuan respectively, corresponding to the current stock price PE of 8.53, 7.5, and 5.79 times, respectively. First coverage, giving a “buy” rating.
Risk warning: The progress of projects under construction falls short of expectations; the recovery of downstream demand falls short of expectations; risk of product price fluctuations.