Main points of investment:
The company is a leading manufacturer of electronic grade epoxy resin in China. Epoxy resin is mainly used in electronic and electrical, coatings, composite materials and other industries, of which powder coatings account for 39%, electronics and electrical appliances account for 30%, and composite materials account for 22%. At present, the production capacity of epoxy resin is up to 73000 tons, which is divided into flame retardant type, liquid type, solid type and solvent type. Flame retardant epoxy resin is the company's leading product, accounting for 57% of its revenue in 2016, which is mainly used in copper clad laminates in the electronics industry, including automotive panels, mobile phones, notebook computers, LED televisions and other electronic products downstream.
The fund-raising project is located at the high end, and the company's production capacity will double after it is officially put into production. At present, there is still a gap between high-end epoxy resin and foreign countries. China is faced with overcapacity of low-end resin and high-end resin still depends on imports.
According to Zhuang Chuang's data, as of September 2017, China's imports of epoxy resin reached 210000 tons and exports reached 60,000 tons. In 2012, the company raised funds for the production of 80,000 tons of electronic epoxy resin, including 23000 tons of liquid products, 42000 tons of flame retardant and other types of epoxy resin, mainly used in copper clad laminates, LED and other high-end applications. At present, the company has achieved full production and sales of epoxy resin, and the current fund-raising project has entered the process of trial production. after the project is officially put into production, the production capacity of epoxy resin will reach 153000 tons, effectively alleviating the capacity bottleneck and enhancing the competitiveness of the company's products.
Cost pushes up the price of products, and the spread widens to improve the profitability of the company. The company's main raw materials are bisphenol A, epichlorohydrin, tetrabromobisphenol An and acetone. Since June 2017, the price of epoxy resin has risen from 14,000 yuan / ton to 26,000 yuan / ton, an increase of 90% over the same period last year. The price of epichlorohydrin has risen from 7600 yuan / ton to 15816 yuan / ton. Bisphenol A price fluctuation is relatively small. Rising from 9500 yuan / ton to 12000 yuan / ton, we estimate that the price difference has risen from 3700 yuan / ton to 8700 yuan / ton. The company's net profit in the third quarter of 2017 reached 19.33 million yuan, an increase of 737% over the same period last year and 143% month-on-month. So far, the price difference in the fourth quarter has increased by 30% compared with the third quarter, and we expect the fourth-quarter results to continue to grow significantly. At the same time, the company's fund-raising project has entered the trial production process, and we believe that the project is expected to be formally put into production in 2018, and the commissioning of the company's main product, flame retardant epoxy resin, is expected to reduce product costs. at the same time, the rise in product prices in 2018 led to the rapid growth of income and gross profit margin.
Profit forecast and rating. We estimate that the company's EPS in 17-19 will be 0.10,0.24,0.33 yuan respectively, with an 18-year 32-fold PE, with a target price of 7.68 yuan, and a "overweight" rating.
Risk hint. The risk of falling product prices; downstream demand is lower than expected.