Matters

On November 30, 2017, we visited the Caike Chemical Iron Phosphate Factory in Cangzhou, Hebei Province, and communicated with the management.

Lottery Chemical is the world's leading manufacturer of dye / pigment / pesticide intermediates. Headquartered in Beijing, the company has three divisions of dyestuff / pigment / nitro, the largest DSD acid and DMSS production base in the world, and three major nitrotoluene production bases in the world. The products are mainly related to dye intermediate series: DSD acid, NTS, DNS, pigment intermediate series: DMSS, DMS, DIPS, DMAS and other products, pesticide intermediates and other products: PNT, ONT, OT, NMP, GBL and other products.

Enter the lithium materials and environmental protection consulting industry, iron phosphate material factory has put into trial production. In 2017, facing the promising market of new energy vehicles and new energy materials, the company entered the lithium industry and built an iron phosphate production line with an annual capacity of 15000 tons, which is about to enter the stage of mass production, while the company cooperates with third parties to further expand the existing NMP products to the field of carbon nanotube slurry products. In addition, the company takes advantage of the original environmental protection experience to export environmental protection consulting services.

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The traditional business of Lottery Chemical has a significant lead. The company's traditional advantage business is the production and sale of dyes, pigments, pesticide intermediates. According to data from Sullivan, a global independent consulting firm, DSD acid accounted for about 53% of the world market share in 2016. About 60% of the company's products are exported, and the world and domestic well-known chemical companies such as Angel, BASF, Indulor, Chuanhua and other major customers have established an average of about 10 years of cooperation.

It is very interesting to enter the new industry of iron phosphate and environmental protection consulting. The company's iron phosphate plant with an annual output of 15000 tons was completed last month and has now entered the stage of trial production, which may bring considerable benefits to the company in 2018; the company makes use of the existing environmental protection team to export environmental protection consulting services. mainly related to wastewater, waste gas and solid waste treatment and other areas.

Based on the above, we give the company an "overweight" rating for the first time.

The following is a record of our research:

Strategic planning of Mr. Goyu, Executive Director, Chief Executive Officer and Chairman:

The focus of growth next year will be on the battery materials business. In the future, the company will change from binary material layout to ternary material layout. Last week, the company reached the only strategic partnership with the Battery Research Institute of Tsinghua University. Tsinghua University will help the company optimize existing binary materials and jointly develop ternary materials. The company expects that the final test will be carried out next year, and if it goes well, mass production will be implemented in 2019, and the future will be a two-yuan plus three-yuan business model.

Develop new business of environmental protection consulting. In the past, the environmental protection team only did environmental work for the company itself and a small number of customers, but this year the environmental protection team tried to enter the field of wastewater and waste gas treatment, and now the team has completed its construction.

Wastewater treatment is divided into three directions. First, municipal sewage. The country continues to raise municipal sewage discharge standards, and the company has a patented technology that can raise discharge standards and reduce sludge by 60-70%. Second, river regulation. The original treatment method is to put chemicals into the river to neutralize pollutants, the advantage is that the effect is quick, the disadvantage is that the pollution will be repeated after a few months, the company put solar windmills in the river, establish river organic groups, and restore the river's own repair capacity. Third, factory wastewater. Customize the business of sewage treatment for enterprises.

In addition, waste gas treatment business. As the national policy requires every factory to carry out VOC testing, the government also has to test VOC. The company has just won the bid for the VOC testing station project in 54 townships in Cangzhou, including the operation and maintenance in the next two years, with an amount of about 30 million yuan.

Chief Financial Officer Mr. Bai Yun's introduction on the overall operation of the company:

There has been a significant increase in revenue this year. The development trend of dyes, pigments and pesticide intermediates in the three traditional business sectors in the second half of the year is the same as that in the first half of the year, and sales revenue and profits have increased significantly. Due to the rise in production costs, the prices of the downstream products of the company have increased accordingly. Among them, the price of dye intermediate DSD acid intermediate rose from 16000 last year to 21000-22000 yuan.

With regard to market share and competitors: the company still maintains a high market share and has an obvious competitive advantage.

With regard to the new business segment: battery materials plate, construction began from February to March this year, completed in October, entered trial production in November, and will increase production and sales in December under stable production conditions this year. The business makes a small contribution to 2017 and will grow in 2018. Environmental protection consulting plate, the company has just begun to build a team, the main business around the atmosphere, sewage and solid waste. Including the design, implementation, service and consultation of the program.

Zhang Hongxing, General Manager of Battery Materials Business, introduced the iron phosphate plant and business:

Battery material project introduction: the product superiority is mainly reflected in the vibrating density, charge and discharge rate, impurity content, magnetic material content, iron-phosphorus ratio and other indicators. Due to the high degree of automation of the production line and few human participation factors, it can ensure the uniformity of the product. The wastewater treatment technology of iron phosphate production line is the only complete wastewater reuse technology in China, which is beneficial to reduce the cost and improve the quality.

Due to the strong R & D team and more than 20 years of chemical production experience, the company has the advantage of industrial production. The products of the future battery material factory are iron phosphate and high nickel ternary precursors, and the customer is the material factory.

At present, domestic car factories, battery factories and material factories are cultivating leaders, such as Guoxuan Hi-Tech, BYD, Beitre and so on may become customers of the future company. The introduction work of the customer usually takes a year, but once the iron phosphate has been broken by the customer, the high nickel ternary material can also be easily imported. There are also two products under the Battery Materials Division, NMP and paste, and the customers are the battery factory and the battery factory.

The iron phosphate factory has now put in seven batches of materials with more than ten tons of products. Starting from the fourth batch, four, five, six and seven batches have reached customer satisfaction. The company has sent samples to BYD, Peking University, Jiangsu Litai and Hunan Thornton. Guoxuan Hi-Tech, Zhongtian Materials and Strand are the next companies to send samples. Compared with the final test material, the product quality of the new production line has been better, and the production line will be gradually increased, which is currently in the customer's last 2-3 weeks of verification cycle.

QroomA:

Why does the company consider making iron phosphate first and then ternary materials?

The two products are not successively, and the company believes that iron phosphate and ternary materials can not be replaced each other in the future.

Since 2017, lithium iron phosphate is mainly used in buses, port logistics vehicles, sightseeing cars and energy storage, and three yuan is mainly used in passenger cars. Now battery factories are both binary and ternary production.

Supply and demand of iron phosphate?

New energy vehicles are in short supply, and other materials are in oversupply, but the effective production capacity is insufficient. The country has repeatedly raised the standard of gram capacity. There is a certain gap in the iron phosphate material which can meet the national subsidy standard.

The process of iron phosphate?

There is no mainstream process for the production of iron phosphate, and each process is different. The company believes that phosphoric acid and ferrous sulfate will be the mainstream of iron phosphate in the future.

Pollution and restriction of iron phosphate?

The iron phosphate production line of the company has no pollution and is zero emission. The main limitation may be energy, which has an impact on the company when the power is cut.

About the OBA project?

The company has been renting it for almost a year. The company has produced different types of OBA and trial-produced OBA for washing, textile and papermaking, and the technology has been mastered. After analyzing the market situation, the company considers whether to build a standard OBA production line in Shandong. OBA may be planned for washing in advance, mainly due to detergent and detergent, which is much higher than growth in other areas. The global demand for OBA for washing is about 30, 000 tons, and the company is considering a production capacity of 10, 000 tons in the first phase.

The development of NMP size?

Shandong has just completed the slurry production line, which is currently in the stage of organizing production, which is less than a month old.

The customers of NMP slurry and iron phosphate overlap, and for customers, the more concentrated the suppliers, the lower their management costs. At present, the design capacity of the slurry is 2000 tons, and the estimated capacity of the Chinese market is 20000 tons. The company intends to pass the product qualification in one quarter, copy several production lines after customer verification, and finally achieve 6000-8000 tons. The original process is to add NMP to the battery, and then make a conductive paste on the basis of NMP, which is helpful to improve the conductive effect and energy storage.

In addition, slurries and ferric phosphate and NMP are customized products. The customer adjusts the properties of the paste according to the iron phosphate. Once the supplier is shortlisted, it will be a cooperation for several years.

A client of NMP?

Such as Suzhou Xingheng, Yinlong, Shandong Power, Camel New Energy and so on.

Production time of iron phosphate?

Mass production is expected in mid-late December this year.

Iron phosphate gross interest rate?

Now the calculation error of gross profit margin is too big. The gross profit margin of the new line must wait until full capacity, and the laboratory data are all above 20%.

Environmental consulting team?

The number of people for the company used to be more than 80 people, and now add about 15 people to the sales team. The company will not increase too much cost, will not incur a lot of expenses, try to choose light asset projects to contract.

Will the rise in oil prices have a direct impact? Raise the price?

The price transmission cycle lags 3-6 months, and the price adjustment cycle is drawn up in accordance with the contract, depending on the rising cost.

In November last year, the company signed orders for many half a year, so the price increase of products lagged behind. But the traditional business is very good in the second half of this year, which is tantamount to earning back all the profits lost in the first half of this year. If the price of raw materials rises again, the company will also raise the price, and if the oil price falls, customers will not ask the company to reduce the price, and long-term cooperation has reached a tacit understanding with customers.

Traditional business order cycle?

International orders for 3-6 months, sea transportation for 1-2 months. Basically 60 days in China.

Are there any plans to expand production in traditional business?

There is nothing for the time being. If the OBA business is expanded, it is not expensive to invest 100-200 million yuan, but it is more expensive for mergers and acquisitions.

At present, the profit margin downstream is relatively thin, and the competition is much fierce. if the company expands production, it will choose the right time.

What is the impact of environmental supervision on downstream customers and companies?

60% of the company's products are exported, and the rest complement each other in domestic customer orders.

How is the herbicide business?

Production was expanded in March last year, from 40,000 tons to 80,000 tons, doubling production capacity. Dongying plant has stopped production for some time this year due to nitrification. In general, when there is an orange warning, production is limited to 20%.

Cooperation with Tsinghua Battery Research Institute?

Last Tuesday, the company formally signed a cooperation agreement with Tsinghua University. The pilot test will be carried out in March, the pilot test will be carried out from March to July, and the construction of the plant will start in July. The product is mainly the intermediate of ternary material before adding lithium, that is, nickel, cobalt and manganese hydroxide. High nickel is the direction of the future, with three elements accounting for 8:1:1.

The trend of national subsidies for new energy?

The state subsidy will further increase the energy density, and the specific indicators will be refined.

The main competitor of the ternary precursor?

There are few ternary precursors in China, and there are more "811" products, and they are matching precursors.

The process of adding lithium to the precursor is very simple, compared with the higher technical barrier of the precursor, and the synthesis of the precursor is the company's traditional advantage.

[risk Tip]

Risk of price increase of raw materials

Energy risk of power restriction in heating season

The customer development of iron phosphate material is not as expected.