Key points of investment:
The first coverage gave an “increase in holdings” rating, with a target price of 9.6 yuan. Based on the booming cycle of the electronic chemicals industry and the gradual release of the company's new production capacity, we expect the company's revenue in 2016-2018 to be 1,236 billion yuan, 1,978 billion yuan, and 2,374 billion yuan, up 30%, 60% and 20% year-on-year; EPS is 0.12 yuan, 0.17 yuan, and 0.20 yuan respectively. Referring to the valuations of comparable electronic chemical companies, based on prudential considerations, the target price was 9.6 yuan, covering the “increase in holdings” rating for the first time.
Electronic-grade epoxy resin leaders, the release of production capacity one after another is expected to improve performance. The company's main product, electronic-grade epoxy resin, is used in the electronic and electrical field. Benefiting from the advancement of the national strategy for semiconductor integrated circuits, the raised production capacity of 80,000 tons is expected to be completed and put into operation within the year. The gradual release of high-end products to replace imports is expected to improve the company's performance.
The actual controller has a deep background and is deeply involved in the electronics manufacturing industry chain. Mr. Wang Wenyang, the actual controller of Hongchang Electronics, is the son of the founder of Formosa Plastics Group. He has deep resources in Taiwan, where the electronics manufacturing industry and electronic chemicals are developed; Guangzhou Hongren and Wuxi Honren, controlled by the actual controller, are related to the company's upstream and downstream industrial chains.
The equity incentive plan mobilizes the motivation of core personnel. The company's adjusted equity incentive plan granted no more than 14.1 million restricted shares to 87 company managers at a grant price of 3.06 yuan/share. The equity incentive plan will fully motivate managers and be of great benefit to the long-term development of the company.
Risk warning: Demand for epoxy resin falls short of expectations, and competition among epoxy resin manufacturers is vicious.