Leading domestic foundry molding materials enterprise. The company is mainly engaged in R&D, production, sales and related technical services of casting molding materials, mainly foundry adhesives. The company's main products include self-hardening furan resin for casting, cold core box resin, supporting curing agents, casting coatings and casting auxiliary materials, etc., which are widely used in casting production in automobiles and internal combustion engines, machine tools and tools, power generation and electricity, cast pipes and fittings, construction machinery, mining and heavy machinery, rail transit, ships and other equipment manufacturing industries. It is an important basic material necessary for casting production in downstream equipment manufacturing.
The industry is deeply integrated, and concentration is expected to increase further. The company mainly focuses on the field of foundry adhesives in a segment of the casting molding materials industry. The main raw materials required for the company's production include biomass chemical raw materials, fertilizer products, and petrochemical products. Among them, the largest amounts are furyl alcohol, urea, phenol, polyisocyanate, etc. The company's raw materials are procured on a market-based basis, mainly from major domestic chemical companies, and the supply is relatively stable. Downstream in the casting molding materials industry is the equipment manufacturing industry. The company mainly provides the basic materials needed for casting production in the equipment manufacturing industry. China's casting production has ranked first in the world for 16 consecutive years since 2000. In 2016, China's casting production accounted for 45.22% of the world's casting production.
Furan resins and cold-core box resins predominate. In terms of revenue composition, in 2017, resin binders for casting contributed 954 million yuan to revenue, accounting for 74.33%; sulfonic acid curing agents contributed 55 million yuan of revenue, accounting for 4.32%; and foundry coatings contributed 60 million yuan to revenue, accounting for 4.70%. The production capacity of the company's main products, resin binders for foundry, sulfonic acid curing agents, and casting coatings, is 113,000 tons, 38,000 tons, and 21,000 tons, respectively.
The fund-raising project is about to be put into operation, and phenolic resin will become a future profit growth point. The company's fund-raising project: The new chemical materials project for foundry with an annual output of 75,000 tons was inspected and put into operation on January 8, 2018. The non-fund-raising project (1), which produces 40 million ceramic filters for casting per year, 8 million thermal insulation vents for casting, and 21,000 tons of sand molded materials for foundry, was inspected and put into operation in the second half of 2017. (2) The special phenolic resin expansion project with an annual output of 40,000 tons is implemented by the wholly-owned subsidiary Xing Ye Nantong, with a total investment of 10.32 million yuan. The construction period is no more than 18 months. It is expected to be put into operation before the end of 2018.
Profit forecast and valuation range. We expect the company's EPS to be 0.81 yuan, 1.07 yuan, and 1.36 yuan respectively after dilution in 18-20 years. The company was given 26 times the PE of 2018, corresponding to the target price of 21.06 yuan, and given a “increase in holdings” rating.
Risk warning. Risk of fluctuations in raw material prices; slowdown in downstream demand growth; environmental protection and production safety risks.
Compliance Reminder: With the approval of National Small and Medium Enterprises Share Transfer System Co., Ltd., Haitong Securities, as a market maker, has been providing market making and quotation services for Shengquan Group since December 24, 2015.