The high boom in caustic soda promotes the reversal of performance, and the chlor-alkali imbalance will continue: under the influence of chlor-alkali imbalance, the operating rate of the caustic soda industry has been significantly suppressed, and driven by strong demand in industries such as downstream alumina, caustic soda products are in short supply in 2017. In October, the price of 32 per cent ionic membrane caustic soda (in eastern China) was quoted at about 1308 yuan per ton, up 23 per cent from September and 35 per cent from the beginning of the year.
Chlor-alkali chemical industry has 720000 tons of caustic soda production capacity, most of which take-out products, caustic soda high boom promoted the company's performance reversal, Q3 achieved a quarterly performance of 350 million yuan. We believe that the downstream demand of liquid chlorine may continue to be lower than that of caustic soda in the future, and the chlor-alkali imbalance is expected to intensify, which will lead to the aggravation of liquid chlorine upside down and the further increase of caustic soda prices, and the performance of chlor-alkali chemical industry will hit a new high.
The integrated industrial chain model of the park benefits from the continuous expansion downstream: the company's Caojing plant is mainly equipped with Shanghai Chemical Park and adopts an integrated operation mode of pipeline transportation to provide long-term chlorine and caustic soda for MDI/TDI/PC and other devices in the park to achieve mutual benefit and win-win results. The company has signed a ten-year long-term contract for chlorine supply with downstream enterprises, which has improved the company's ability to survive and develop steadily for a long time. Benefiting from the continuous expansion of enterprises in the downstream park, the company has gradually developed into a world-class chlorine supporting enterprise. We believe that with the expansion of Lianheng and Huntsman in 2018, the company's production capacity is expected to continue to be released and enjoy the investment income brought by downstream production expansion.
The integration of hydrogen chloride / chlorine cycle is expected to break through the overseas technology monopoly: the company uses ethylene as raw material and uses by-product hydrogen chloride gas to get dichloroethane. Due to the sluggish downstream demand for dichloroethane, the price has fallen to a historical bottom. The business is a drag on the company's overall performance. At present, the industrialization project of hydrogen chloride catalytic oxidation to chlorine gas independently developed by the company's national technology center is progressing steadily. Once it is completed, the company will break through the overseas technical monopoly and find a new solution for the disposal of by-product hydrogen chloride.
Investment advice: the company's historical burden has been basically solved, and the performance is expected to reach a new high in the future with the aggravation of the difficult balance of alkali and chlorine in the market. We estimate that the EPS of the company in 17-19 is 0.86,1.13,1.28 yuan respectively. Maintain the buy-An investment rating with a 6-month target price of 18 yuan.
Risk tips: the downstream demand of caustic soda is lower than expected, the demand of liquid chlorine improves, and the price of ethylene fluctuates.