The world's leading precipitation silica company has focused on the R&D, manufacture and sale of precipitated silica for many years, and has now become the largest supplier of precipitated silica in Asia and the third largest in the world. The company's industrial chain extends upstream and downstream. At present, a complete industrial chain has been built from raw materials such as sulfuric acid and sodium silicate to the final product silica. Product applications cover various fields such as the rubber industry, feed, silicone rubber and toothpaste. The company has a global vision and is actively allocating production capacity at home and abroad. As of 2022, the company had a production capacity of 330,000 tons/year of silica, including 195,000 tons/year of high-dispersion white carbon black, accounting for 59.1%. The production capacity of the company's two phase 25,000 tons/year in Thailand and 75,000 tons/year of high-dispersion silica projects in Shaxian County, Fujian has been gradually released, and competitiveness is expected to be strengthened.

The green upgrade of the tire industry opens up space for white carbon black growth

The estimated consumption of white carbon black in 2015 was 3,348 million tons, and the global market is expected to grow at a rate of 5.0% between 2016 and 2025. In terms of value, the global white carbon black industry's market size in 2018 was 5.22 billion US dollars. Due to the increase in demand for white carbon black in the rubber, plastics and other industries, it is predicted that the future growth rate of the industry will reach 8.6%. With the rapid development of domestic tire, shoe and other industries, the market size of white carbon black has also gradually expanded. In 2012-2019, apparent consumption of white carbon black increased from 743,000 tons to 1,560,000 tons, and CAGR reached 10.6%. Adding white carbon black to the tire rubber surface can improve tire performance and reduce tire rolling resistance. The mileage anxiety brought about by new energy vehicles makes users have great demand for tires with low rolling resistance and low energy consumption. Under the impetus of the European Union, a number of regulations and industry standards on green tires have been introduced one after another, and countries around the world have followed suit. As a major tire country, China's dependence on foreign exports is as high as 40%. Overseas policies will force domestic tires to be upgraded green and drive consumer demand for white carbon black. According to estimates, under the tire greening rate process, demand in the global high-dispersion white carbon black market is expected to reach 1,321 million tons in 2025, with room for growth of more than 35% compared to 2021.

The barriers to high-end products are high, and they are gradually concentrated on leading companies

At the end of 2020, the white carbon black production capacity of domestic enterprises reached 2.655 million tons, while high-end products represented by high dispersion accounted for a relatively small share. In 2020, they only accounted for 24.5% of the total white carbon black production capacity. The precipitation method, in particular, highly dispersed white carbon black has high energy consumption and high technical barriers. Generally, the construction cycle for production expansion projects is 12 months or more, and the construction cycle for new construction projects is at least 24 months, making it difficult to release large-scale volumes in the short term.

Integration has become a trend, and falling raw material prices have opened up profit space

Self-production of sodium silicate and sulfuric acid production of white carbon black by precipitation can reduce material costs by about 10%; in addition, preparing sulfuric acid waste heat to generate electricity can also improve energy efficiency. On the cost side, self-produced sodium silicate requires soda ash. In the future, as domestic soda ash production capacity expands, its price is expected to continue to decline. Coupled with the improvement in downstream demand, precipitation white carbon black is expected to start a new boom cycle.

Quecheng shares: technology, industrial chain, and customers go hand in hand

1. R&D process advantages: The company and its subsidiaries have obtained 38 invention patents and 122 utility model patents. The patents cover professional production equipment, manufacturing technology and processes for silicon dioxide; 2. Advantages of the whole industry chain: the company's products cover silicon dioxide and its raw materials, sodium silicate, sulfuric acid, steam, electricity, etc., to reduce large production costs; 3. Customer first-mover advantage: Highly dispersible white carbon black has a long certification cycle, and the company has obtained certification from many domestic and foreign tire companies, and has formed good cooperative relationships.

First coverage: Giving a “buy” rating

The company is the largest supplier of silica by precipitation method in Asia and the third largest in the world. The company's industrial chain extends upstream and downstream, and has now built a complete industrial chain from raw materials such as sulfuric acid and sodium silicate to the final product silica. With the continuous increase in the global tire greening rate and the release of the company's own production capacity, performance is expected to usher in rapid development. It is estimated that the company's net profit attributable to the mother in 2023-2025 will be 430 million yuan, 53 million yuan and 620 million yuan respectively.

Risk warning

1. The investment of new production capacity falls short of expectations; 2. Downstream demand is weak; 3. Fluctuations in raw material prices; 4. Risk that profit forecasting assumptions are not valid or falling short of expectations.