Event: the company announced its annual report of 2017 on March 15, with annual revenue of 7.227 billion yuan, year-on-year + 6.99%, net profit of 993 million yuan, year-on-year reversal of losses, EPS of 0.86. The significant improvement in performance was mainly due to a sharp increase in the price of caustic soda, the leading product, and a drop in costs.
Caustic soda boom is expected to be maintained: due to the influence of chlor-alkali imbalance and environmental protection pressure, the supply of caustic soda industry is still limited in the medium and long term, liquid chlorine is still in the doldrums in 2018, the average factory price is close to 0, and the freight rate is in the range of 450-1400 yuan per ton. it is expected that the whole year will still be an important factor in suppressing caustic soda start. On the demand side, alumina pre-production capacity will gradually resume production, it is expected that the rise in caustic soda prices has just begun in March, is expected to break through the historical price highs. On the whole, we believe that under the support of chlor-alkali imbalance and downstream alumina demand, the upward fluctuation of caustic soda price is the main theme of 18 years, and the average price of caustic soda in 18 years is expected to be higher than that in 17 years.
The integration of the park benefits from the increment brought by the downstream expansion: the company's Caojing plant is mainly equipped with Shanghai Chemical Park, providing long-term chlorine and caustic soda for MDI/TDI/PC and other devices in the park.
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.
After the adjustment of the industrial structure, the cost has been greatly reduced: the company's performance has been dragged down by the employee placement and diversion compensation fees caused by the industrial structure adjustment of the wujing base in the past three years, and the management expenses in the past 17 years have dropped by 69% compared with the same period last year, mainly due to the reduction of shutdown losses and dismissal fees compared with the same period last year; in addition, sales and financial expenses have also declined to varying degrees, and the decline of the three rates has improved ROE as a whole.
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 to produce dichloroethane, which is a drag on the company's performance. At present, the hydrogen chloride catalytic oxidation to chlorine gas project independently developed by the company is progressing steadily. Once it is completed, the company will break through the overseas technology monopoly and find a better profit scheme for the by-product hydrogen chloride.
Investment suggestion: we estimate that the EPS of the company in 18-20 is 0.91,1.21,1.33 respectively. Maintain the buy-An investment rating with a 6-month target price of 18 yuan.
Risk hint: the downstream demand of caustic soda is lower than expected, and the demand of liquid chlorine is better than expected.