Event: the company released its annual report for 2016, with an operating income of 539 million yuan during the reporting period, an increase of 11.4% over the same period last year, and a net profit of 103 million yuan belonging to shareholders of listed companies, an increase of 52.6% over the same period last year. At the same time, the company released a report for the first quarter of 2017, with operating income of 147 million yuan during the reporting period, an increase of 23.6% over the same period last year, and a net profit of 19 million yuan belonging to shareholders of listed companies, a decrease of 5.7% over the same period last year.
The continuous optimization of product structure contributes to the high growth of revenue and net profit of the company. The company adheres to the market competition strategy of "high-end and differentiation", avoids the increasingly fierce competition of POF ordinary film market, and strives for the high value-added POF cross-linked membrane market, realizing the high growth of revenue and net profit. During the reporting period in 2016, POF cross-linked films accounted for 44.5% of revenue and 52.4% of gross profit, respectively, making it the company's main source of performance contribution.
In the first quarter of 2017, the company continued to maintain high revenue growth, but net profit fell slightly due to higher costs. The main raw materials of the company's products are linear low density polyethylene and copolymerized polypropylene, the price is highly consistent with the international oil price, and the upward rise of oil price has led to the increase of cost. We expect crude oil prices to remain volatile in a certain range in 2017, and the company's raw material costs are expected to be brought under control.
The thermoplastic elastomer project has been basically completed and is about to become a new profit growth pole. During the reporting period, the construction period of the company's holding subsidiary Zhongli material "annual output of 120000 tons thermoplastic elastomer project" has come to an end, and it is expected to reach the state of use from June to July 2017. According to the public data, Professor Han Bingyong and Professor Zhang Aimin, the controlling shareholders of Zhongli Materials, all have many years of experience in the research and development of thermoplastic elastomers, and have participated in the SBS development project of Baling Petrochemical. Compared with other thermoplastic elastomers, the new TPAE developed by the company has the advantages of oil resistance, wear resistance and good mechanical properties, and can be widely used in sharing bicycles, mobile phones, medical treatment, automobiles and many other fields. At present, the launch of shared bikes is in an explosive period, and with the gradual landing of the company's projects, we expect that the company's products will be the first to open the market in the field of shared bikes, and the project is expected to continue to contribute to the company's performance and become an important source of profits for the company in the next few years.
The pilot project of high-performance functional polypropylene film is progressing smoothly, or it may be used in securities. At present, the company has published more than 10 patents related to the project, and according to our analysis of the company's patents, the project is intended for securities. The company's products are expected to be used as plastic substrates for plastic banknotes. According to our calculation, the market space for plastic substrates is as high as 20 billion, and the company may benefit from it exclusively.
Profit forecast and rating: from 2017 to 2019, the EPS is expected to be 0.17,0.73,1.10 yuan respectively, and the corresponding dynamic PE is 121,28 and 19 times respectively, maintaining the "buy" rating with a target price of 31 yuan.
Risk hints: the risk of lower-than-expected downstream demand, the risk that the thermoplastic elastomer project is not as expected, the risk that the polypropylene film trial project is not as expected, and the risk of raw material cost changes caused by oil price fluctuations.