Company Overview
The company released a performance report for the first quarter of 2018. The company achieved operating income of 373 million yuan in January-March 2018, an increase of 48.85% over the previous year; net profit attributable to shareholders of the parent company was 199283 million yuan, an increase of 109.43% over the previous year, and the growth rate of net profit returned to the mother after deduction reached 140.19%.
Company reviews
The epoxy resin market is improving, and rising costs are driving up prices
The company is mainly engaged in the production and sale of electronic grade epoxy resins. The main products are divided into liquid epoxy resins, flame retardant epoxy resins, solid epoxy resins and solvent-based epoxy resins, which are suitable for various fields such as electronics, coatings, and composites. Previously, due to excessive supply from the industry, the industry continued to be sluggish. As environmental protection inspections became stricter, production of some domestic enterprises was limited, operating rates were low, and raw material prices continued to rise, driving up the price of epoxy resin.
In particular, in November 2017, the Ministry of Commerce issued a preliminary ruling on the anti-dumping investigation against imported BPA originating in Thailand. It was determined that dumping existed and a security deposit was imposed, which boosted the BPA market quite strongly. The price of epoxy resin remained at around 14,400 yuan/ton in the first half of 2017, and reached about 27,000 yuan/ton in December 2017. Although prices declined after a year, we expect the price center to be higher than last year's likely. Furthermore, epoxy resins are also included in the list of goods subject to additional tariffs imposed on the US issued by the Ministry of Commerce in April 2018.
New production capacity investment opens bottlenecks and fully enjoys the industry's recovery dividends
The company currently has an epoxy resin production capacity of 73,000 tons/year in the Guangzhou plant. The capacity utilization rate is high. Even in 2015 and 2016, when the industry was poor, the capacity utilization rate was around 90%. The company's new plant in Zhuhai has a production capacity of 117,000 tons/year. Trial production began in September 2017 and will produce benefits in 2018.
Profit forecasting and valuation
We forecast the company's operating revenue for 2018, 2019 and 2020 to be 2,068, 2,842 million yuan and 3.144 billion yuan respectively, with growth rates of 67.15%, 37.46% and 10.61% respectively; net profit attributable to shareholders of the parent company was 145 million, 228 million and 268 million yuan respectively, with growth rates of 93.90%, 57.78% and 17.48% respectively; fully diluted EPS per share was 0.24, 0.37 and 0.44 yuan respectively, corresponding to PE 22.0, 14.0 and 14.0 yuan respectively 11.9 times, first coverage, giving an “increase in holdings” rating within the next six months.
Risk warning
Prices of raw materials and products have fluctuated; national policies have changed; new production capacity has fallen short of expectations.