[Societe Generale Securities] Shilong Industry: characteristic enterprises in fine chemical subdivision

興業證券 ·  03/10/2015  · Researches

Shilong Industry is the mainstream manufacturer in the field of AC foaming agent and thionyl chloride. The company's main products include AC foaming agent, thionyl chloride, chlor-alkali and so on. At present, it has an annual production capacity of 60,000 tons of AC foaming agent, 35000 tons of thionyl chloride and 290000 tons of caustic soda. It is the second largest manufacturer of AC foaming agent and thionyl chloride in China, with high domestic market share and certain brand awareness.

AC blowing agent business is expected to improve, thionyl chloride continues to be highly profitable. AC foaming agent industry is highly concentrated, domestic backbone enterprises have outstanding scale advantages, at the same time in the high-end improvement technology continues to make breakthroughs. In recent years, the export volume of AC blowing agent has increased year by year, coupled with the expansion of applications in traditional downstream industries and emerging fields, the demand has increased steadily, and the supply and demand pattern and industry boom are expected to be improved. With the recovery of downstream dyes and other industries, the demand of the thionyl chloride industry has increased, and the price has rebounded steadily from 2012 to 2014, with an upward trend in profitability. it is expected that a higher profit level will continue in 2015.

With the integration of circular economy, the subsequent expansion of scale is expected to lead to growth. Shilong Industry has formed an industrial chain based on chlor-alkali, AC foaming agent and thionyl chloride as downstream products, which has the advantage of circular economy.

The company has a certain price say in the subdivision of AC foaming agent and thionyl chloride. Under the background of stable or improving industry prosperity, with the implementation of fund-raising projects, the production and marketing scale of AC foaming agent and thionyl chloride is expected to continue to expand, driving the steady growth of the company's profits and consolidating the company's competitive advantage.

Profit forecast: we estimate that the company's fully diluted EPS in 2015-2017 is 0.80,0.89 and 0.98 yuan respectively (assuming that the number of new shares issued is 30 million shares, and the total share capital after the issue is 120 million shares). Combined with the industry average valuation and the company's competitive advantage, and considering the capital raised by the company, we believe that we can give the company a valuation level of 17-22 times PE in 2015, corresponding to a reasonable market capitalization of 16.3-2.11 billion yuan.

Risk tips: the risk of raw material price fluctuations; the risk of downstream demand downturn.

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