The company is the largest fluorosilicon production base in Asia and has a comprehensive vertically integrated industrial chain. The company is mainly engaged in the manufacture and sale of refrigerants, polymer materials, silicone and methylene chloride, polyvinyl chloride and caustic soda products. It has a comprehensive vertically integrated industrial chain. The production capacity scale of products such as silicone, refrigerants, organic fluorine polymer materials and other products ranks among the highest in the industry, and is the largest fluorosilicon production base in Asia. The company focuses on research and development, has a large number of independent intellectual property rights, and has broken many foreign technology monopolies on new environmentally friendly refrigerants, fluorosilicon materials, chloride ion films, etc., and is a national key high-tech enterprise.
The silicone industry is still in a boom cycle. The company's production capacity scale and technical advantages are remarkable. It is proposed to split A-shares and go public independently. In 2019, China added only 200,000 tons of silicone monomers to new silicone production capacity. The year-on-year growth rate of production capacity was 7%. The impact of the new production capacity on the industry was limited. In the future, new real estate construction areas will maintain a high growth rate, effectively supporting demand for silicone, and the silicone industry is still in a boom cycle. The company has 250,000 tons of silicone monomer production capacity, ranking in the top ten in the world and fourth in China. It has integrated production capacity from metal silicon powder processing to silicone monomers, intermediates, and a series of deep-processing products such as downstream silicone rubber, silicone oil, and gas-phase white carbon black, forming a relatively complete industrial chain support. The company plans to split Dongyue Silicone and go public independently on A-shares to raise 4.5 billion yuan for 300,000 tons/year of silicone monomers and 200,000 tons/year for downstream silicone products. After the project is completed and produced, the company's total production capacity of silicone monomers is expected to reach 600,000 tons/year, and its industry position and competitiveness will be further enhanced.
The refrigerant supply and demand pattern has improved, and the company's entire industry chain has significant advantages. In the context of stricter environmental regulations, the supply of the entire fluorine chemical industry chain is still in the process of shrinking, while air conditioning sales and even demand for refrigerants will steadily increase in the future. We expect refrigerant prices to remain on a moderate upward channel. The company has a complete range of refrigerant products, and has the highest R22 production quota in the country. The total production capacity of various refrigerants is about 400,000 tons/year, making it the world's largest refrigerant production base. The company has a relatively complete industrial chain. With the exception of raw salt and fluorite, most raw materials such as methane chloride and steam are self-sufficient, which can fully benefit from the rise in product prices in all parts of the industrial chain. At the same time, it effectively consumes hydrochloric acid, a by-product, to avoid operating rate limitations due to hydrochloric acid expansion.
The development prospects of polymer materials are broad, opening up space for the company to grow. The company continuously adjusts and optimizes its product structure, comprehensively develops into high-performance materials fields such as fluoroplastics and fluororubber, and develops downstream high-value-added products. Currently, the company has a production capacity of 45,000 tons of polytetrafluoroethylene, ranking first in Asia. It has a production capacity of 10,000 tons of polyvinylidene fluoroethylene, a domestic market share of 50%, and a production capacity of fluororubber with the highest production and sales volume in the country. The chlor-alkali ion membrane independently developed by the company has broken the monopoly of foreign technology and contributed greatly to China's chlor-alkali industry. With the gradual maturation of technology and the elimination of outdated caustic soda production processes, the company's ionic membranes will have a lot of market space in the future. The long-life, high-performance fuel cell proton membrane independently developed by the company has exceeded 6,000 hours. It has passed the AFCC technical certification. As the domestic fuel cell vehicle industry gradually enters a growth period in the future, the company's fuel cell membrane business will also enter a fast track of development.
Profit forecast and investment rating: We expect the company's net profit attributable to the parent company in 2019-2021 to be $2,207 million, $2,268 million, and RMB 2,491 million respectively. Based on the latest share capital calculation, the corresponding diluted earnings per share were $104, $1.07, and the Securities Research Report of RMB 1.18, respectively, covering the “buy” rating for the first time, with a target price of HK$17.32 per share ($14.80 per share).
Stock price catalyst: product prices rose above expectations; release of organic fluoropolymers and membrane materials; the country issued an incentive policy for the fuel cell vehicle industry.
Risk factors: The growth rate of new real estate construction area and the growth rate of sales area did not meet expectations; environmental protection