Key points of investment:
China is a leading photoresist chemical leader, and traditional business is progressing steadily. The company's special chemicals for photoresists are divided into two major series: photoinitiators for photoresists (including photosensitizers, photoacid production agents, etc.) and photoresist resins. According to application areas, there are three main categories: PCBs, LCDs, and semiconductors. Among them, the company's photoinitiators and resins for PCB photoresists already occupy a dominant position in the domestic market; LCD photolithography photoinitiator series products have broken the monopoly of such products by BASF and other multinational companies and filled the domestic gap; semiconductor KrF photoresists and photoacid intermediates for photoresists are developing rapidly, entering the supply systems of world-class photoresist companies such as JSR and TOK. In the first three quarters of 2018, the company achieved operating income of 513 million yuan, an increase of 8.6% over the previous year; Guimu's net profit was 112 million yuan, an increase of 5.7% over the previous year.
Driven by environmental protection, the UV-LED business is worth looking forward to. Benefiting from the restrictions on VOCs emissions due to stricter environmental protection, more energy-efficient and environmentally friendly UV-LED technology has begun to be applied in the field of gravure printing. There is a lot of room for replacement of traditional inks and coatings. The company announced in August 2018 that it intends to use its own funds to transfer 10% of Changzhou Gelin Sensing's shares, and the actual controller promised that Greene Sensor's shares will be injected into the company on a priority basis when Gelin Sensor becomes profitable. The UV-LED business is expected to break the growth ceiling of the original business and become a new profitable growth point.
Teaming up with giants to lay out OLED materials to fill gaps in the domestic market. The company established a joint venture with Taiwan Yulei Optoelectronics to establish a subsidiary, Qiangyu Optoelectronics, and signed a “Laboratory Operation Cooperation Agreement” with LG Chemical to jointly establish an OLED material evaluation laboratory in Chengdu to provide OLED material solutions to display panel manufacturers in China. Qiangli Yulei currently has a series of electric hole transport layer materials, hole transmission materials, electric hole injection layer materials, suitable for full-color OLED red, green, and blue light emitting mixed materials, etc., and is actively cooperating with the Taiwan Institute of Technology to develop and improve next-generation organic small molecule materials with luminescence, high brightness, and long service life. Qiangli Ullei began production in September 2017. In 2017, the OLED material sublimation production line had 6 sublimation machines and 1 evaporation machine.
Profit forecasting and investment ratings: First coverage, giving an “increase in holdings” rating. The company is a leading photoresist chemical leader in China. Its main customers include major global photoresist manufacturers such as Changxing Chemical, Niche Chemical, Hitachi Chemical, etc., with strong technical strength. The company laid out the UV-LED and OLED materials business ahead of schedule, which is expected to become a new profit growth point. We are optimistic about the development prospects of the company's business. Without considering Greene Sensing's performance for the time being, we expect the EPS for 2018-2020 to be 0.57, 0.64 and 0.73 yuan/share, and the corresponding PE is 54.11, 47.72, and 41.83. The first coverage gave an “increase in holdings” rating.
Risk warning: Demand in the PCB and LCB business areas fell short of expectations, the decline in the semiconductor industry's prosperity affected downstream demand, environmental protection and production safety risks, and new business development such as UV-LED fell short of expectations.
