Core views
Benefiting from the recovery in coke prices, the company achieved rapid growth in 2018, and the advantages of the circular economy industry chain are also expected to stabilize production costs. The increase in the company's performance in the past two years is expected to come from a new 300,000-ton stabilized light hydrocarbon project. In addition, the company is actively promoting new material industry projects such as graphene-based intermediate-phase carbon microspheres and needle-shaped coke, which is also expected to become a long-term performance growth point. For the first time, we covered an “increase in holdings” rating.
Net profit increased nearly 112% in 2018. The company's operating income/net profit in 2018 was 3,560/343 million yuan (+21.28%/+111.86%, respectively), EPS was 0.21 yuan, after deducting non-net profit of 374 million yuan, +192.05% over the same period last year. The main reason was that the coke market and coal chemical products market were relatively good, and the company's production, sales, and unit prices all increased significantly.
The volume and price of the coke business have risen sharply, and sales of needle coke have increased markedly. In 2018, the company sold 1,4223 million tons of coke (+7.44% year on year), the unit price was 1,848.26 yuan/ton (+18.70% year on year), and the unit cost was 1,474.82 yuan/ton (+13.09% year on year), mainly due to the increase in the price of raw material coking coal. In the coal-based chemical industry, the company sold 95,200 tons of methanol (-7.33% YoY), the unit price was 2,348.94 yuan/ton (+1.81% YoY), and the unit cost was 652.93 yuan/ton (-12.79% YoY). The company's electricity sales volume was 77.88 million kilowatts (-46.56% year-on-year). The main reason was that the increase in private electricity consumption in the current period led to a decrease in online electricity sales. The unit price was 0.31 yuan/kilowatt (+2.18% compared with the same period), and the unit cost was 0.24 yuan/kilowatt hour (+17.64% year-on-year). In terms of new materials, the company's needle focus series products have gradually been recognized by customers, with production and sales volume of 179/10,000 tons respectively, an increase of 1.4x/162x over the previous year.
Build a circular economy industrial chain and actively lay out new materials to promote industrial transformation. The company has formed a circular economy industrial chain of “coal to coke, coke to gas, methanol synthesis from gas, methanol synthesis of stable light hydrocarbons from methanol, coking waste heat generation, deep processing of coal tar as a by-product of coking, and steam heating remaining in power plants”, making the cost of traditional business products lower than the industry average. On the other hand, the company has implemented a transformation from coal chemicals to new materials to promote new material industry projects such as graphene, intermediate carbon microspheres, and needle coke. It has now formed a production capacity of 150 tons of graphene powder, 50,000 tons of needle coke, and 300,000 tons of stable light hydrocarbons (gasoline additives). Although the current capacity utilization rate of these projects is low, they can become a source of long-term profit growth for the company.
Risk factors: A sharp slowdown in the macroeconomic economy, affecting demand for coke; marketing of new materials products fell short of expectations.
Investment advice: Based on the cost advantages of the company's recycling integration and the newly launched 300,000-ton stabilized light hydrocarbon project, which will gradually contribute profits from 2019, we expect the company's EPS to reach 0.33/0.46/0.58 yuan respectively from 2019 to 2021. The current stock price is 6.68 yuan. The corresponding P/E for 2019 to 2021 is 20/15/12x, respectively. Referring to the long-term historical valuation center of the coking industry by 2 times PB, and considering that the valuation of the chemical sector is slightly higher than traditional coke, we gave the company a 2018 p/B2x corresponding target price of 7.54 yuan, covering the “increase in holdings” rating for the first time.