Summary of the report:
China's leading PU synthetic leather manufacturing enterprises. As a manufacturer of sea-island ultra-fine fiber leather, the company is one of the leading enterprises in the domestic ultra-fine fiber PU synthetic leather industry and is in the first echelon of the domestic industry. Continuous R & D investment has prompted the company to obtain a number of domestic leading-level technological achievements and won many awards at the national, provincial and ministerial levels. The company's scientific research achievement of "serial product development and industrialization of PA6/PE blended island process ultra-fine fiber and artificial suede" won the second prize of national science and technology progress issued by the State Council.
The demand of ultra-fine fiber PU synthetic leather is exuberant: the use of ultra-fine fiber PU synthetic leather in China has been increasing year by year since 2005, with a rapid growth rate, far exceeding the growth rate of artificial leather synthetic leather. In the future, the total market demand of synthetic leather in China will continue to increase, but different types and grades of products will show different development trends, and the market demand of ultra-fine fiber synthetic leather will grow at a high speed. According to the forecast of the synthetic Leather Professional Committee of China Plastics processing Industry Association, the output of ultra-fine fiber PU synthetic leather in 2012 will be 129 million square meters, an increase of 17%. In 2013, the output of ultra-fine fiber PU synthetic leather was 162 million square meters, an increase of 26%; in 2014, the output of ultra-fine fiber PU synthetic leather was 192 million square meters, an increase of 19%.
The utilization rate of production capacity has gradually dropped, and product prices have dropped slightly. From 2009 to 2011, the corresponding capacity utilization rate of superfiber-based cloth was 100,132% and 147% respectively, and the company's capacity utilization rate increased rapidly in the past three years. With the construction of the company's investment projects and a substantial increase in peer production capacity, we expect that the capacity utilization rate of superfiber base cloth will gradually decline. From 2012 to 2014, the utilization rate of super fiber leather base cloth capacity will be 140%, 125% and 120%, respectively. Due to the substantial expansion of production capacity in the industry and the downward trend in the prices of ultra-fiber leather products, we expect the company's product prices to fall by an average of about 2% a year, but the gross profit margin of the company's products is already lower than the industry average, and we estimate that the decline is relatively small.
The valuation range is 20-26.3 yuan per share. Refer to two kinds of relative valuation criteria: 1) the company's main business is ultra-fine fiber PU synthetic leather, and Huafeng superfiber, Hexin shares, Amway shares and Shuangxiang shares are relatively similar in A-share listed companies. According to Wind's consensus estimate, the average 12-year PE of the four comparable companies is 16 times. 2) the average 12-year PE of the 17 gem companies listed since March is 21 times. Considering the above two kinds of valuation criteria, we give the target price-to-earnings ratio of 16-21 times for 2012, and the corresponding inquiry range is 20-26.3 yuan. With reference to the recent performance of new shares on the first day of listing, we expect the company to fluctuate in a range of about 10% on the first day of listing, corresponding to a pricing range of 22.5-28.9 yuan.
Risk hints: (1) the risk of raw material price fluctuations; (2) the risk that the growth rate of short-term market demand is lower than expected; and 3) the risk of market competition and customer concentration.