Strong R & D capability of technology and process and strong potential for development: the subsidiary Nengte Technology has an excellent research team, customized pharmaceutical intermediates are mostly exclusively supplied worldwide, and non-customized pharmaceutical intermediates also belong to one of the 2-3 suppliers in the world. Through the original chemical reaction process to replace the initial raw materials of the product, reduce the cost, thus increasing the gross profit margin. In 2016, the gross profit margin of the company's pharmaceutical intermediate business reached 50.17%, which is at the higher gross profit margin level of related products in the same industry.
Innovative process, VE project has raw materials and cost advantages: the company adopts a new synthesis route to produce trimethylhydroquinone, the key intermediate of VE, using p-xylene as raw material. Break the boundary that the domestic m-cresol and trimethylhydroquinone are fully controlled by the former two oligarchs and the supply is scarce; moreover, the raw material xylene of the new process is abundant and cheap, which makes the company have a greater cost advantage. The company's VE production capacity is 20,000 tons, accounting for about 17% of the global production capacity. At present, the price of VE is in the doldrums, which is in the double-dip stage. At the beginning of August 17, the price is 39 yuan / kg, which is near the production cost of the whole industry. With the advantages of sufficient raw materials and cost of the new technology, the company has a strong competitiveness; in the future, with the improvement of the VE industry, the company's performance is more flexible. According to the company's production capacity of 20,000 tons, every 10 yuan / kg increase in VE price will bring the company an annualized profit elasticity of 128 million yuan.
Layout vertical e-commerce, consolidate sales network: subsidiary plastic rice information is a bulk chemical commodities trading e-commerce and supply chain management service platform based on plastic raw materials, by providing a full range of e-commerce services for customers on the transaction chain, such as online procurement, finance; offline warehousing logistics, etc., has developed into one of the most influential supply chain e-commerce platforms in China's plastics industry. The huge sales network of plastic rice information is expected to solve the deficiency of the company's sales link and form a synergy effect in the business. At the same time, the rich profits of plastic rice information provide a new profit growth point for the company. The performance commitment of plastic rice city in 1719 is 15,225 and 300 million yuan.
Investment suggestion: we expect the company's EPS from 2017 to 2019 to be 0.08,0.13,0.18 yuan respectively, and the 12-month target price will be 4.9yuan for the first time.
Risk tips: VE downstream demand slowdown, plastic rice city performance is not as expected, and so on.