This report is read as follows:

We believe that with the advantages of performance and cost, through import substitution and downstream application expansion, it is enough to eliminate the capacity digestion problem that the market is worried about. For the first time, the "overweight" rating was given, with a target price of 26.1 yuan.

Main points of investment:

For the first time, the "overweight" rating was given, with a target price of 26.1 yuan. The "annual output of 120000 tons of thermoplastic elastomer materials" has been approved, and we believe that with the advantages of performance and cost, through import substitution and downstream application expansion, it is enough to eliminate the production capacity digestion problem that the market is worried about. It is estimated that the net profit of homing from 2016 to 2018 is 105 million / 141 million / 270 million yuan respectively, corresponding to EPS0.12 yuan / 0.16 yuan / 0.31 yuan. With reference to the valuation level of the industry, and taking into account the certainty of the company's future performance growth (CAGR about 85% in the next three years) and the potential space in the thermoplastic elastomer market, a target price of 26.1 yuan is given.

The fixed increase project of "annual output of 120000 tons of thermoplastic elastomer materials" has been approved by the CSRC and has a wide range of applications. Thermoplastic elastomers (pre-input with self-raised funds) are mainly new polyamide elastomers (TPAE). Compared with traditional thermoplastic elastomers, thermoplastic elastomers have better oil resistance and high temperature resistance, and can realize oil filling and reduce production costs. downstream applications include halogen-free flame retardant charging pile cables, heat-resistant and oil-resistant household equipment packaging materials, automotive oil-resistant and heat-resistant conduits and other fields. According to the project schedule, the thermoplastic elastomer project is expected to be put into trial operation from June to July 2017. The construction period of the project is 1.5 years, and the yield is 12.5% in the first year of production, 25% in the second year, and 100% in the fifth year. After reaching production, the project is expected to achieve an average annual sales income of 2.964 billion yuan and an average annual profit of 1.003 billion yuan, which will form an important supplement to the company's existing POF heat-shrinkable film business and a new profit growth point.

The proportion of high value-added products such as POF cross-linked films is increasing. The company's products include POF ordinary film, POF cross-linking film and POF high-performance film three categories, annual production capacity of 22500 tons, the first domestic market share. Among them, cross-linked film is a high value-added products, such as Apple Inc, Samsung, Huawei and so on are company customers. Judging from the company's performance of KuaiBao in 2016, the revenue scale of POF cross-linked film has surpassed POF ordinary film for the first time to become the largest source of revenue for the company's main business, and the increasing proportion of high value-added products will improve the overall profitability of the company.

Risk hint: the market competition of thermoplastic elastomer is intensified.