Company Overview
The company released its 2018 semi-annual report. From January to June 2018, the company achieved operating income of 838 million yuan, an increase of 61.84% over the previous year; net profit attributable to shareholders of the parent company was 34.77 million yuan, an increase of 99.07% over the previous year, and net profit returned to the mother after deduction was 32.8 million yuan, a year-on-year growth rate of 120.12%.
Company reviews
The epoxy resin market is improving, and rising costs are driving up prices
In terms of production and sales of its main products, the company produced 45,700 tons of epoxy resin in the first half of the year, with sales volume of 43,600 tons, a significant increase from 35,900 tons and 35,500 tons in the same period last year. Sales increased by 22.82%. In terms of sales prices, the average sales price of the company's epoxy resin products was 19204.16 yuan/ton, an increase of 31.80% over the previous year, but there was a decrease from Q1 2018 (Q1 quarter was 20689.34 yuan/ton). In terms of raw materials, the average purchase price of bisphenol A was 11612.59 yuan/ton, an increase of 34.06% over the previous year; the purchase price of epoxychloropropane was 12335.32 yuan/ton, an increase of 66.40% over the previous year; the purchase price of tetrabromobisphenol A was 24811.93 yuan/ton, an increase of 9.15% over the previous year; and acetone was 5464.80 yuan/ton, a decrease of 6.90% over the previous year. Compared to the Q1 quarter, the increase in BPA increased, and the remaining three were all slightly lower. We expect the epoxy resin industry to remain balanced and profit levels to remain stable in the future.
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 revenue for 2018, 2019 and 2020 to be 2.068, 2,842 billion 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 84.30%, 57.78% and 17.48% respectively; fully diluted EPS per share was 0.24, 0.37 and 0.44 yuan respectively, corresponding to PE 17.8, 11.3 and $17.3, respectively 9.6 times, maintaining the “increase in holdings” rating for 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.
