Key points of investment:
Jitai Co., Ltd. is committed to developing sealants and coatings, and is a key high-tech enterprise of the National Torch Program. Established in 2006, it has initially formed two major business segments of sealants and coatings. Five major business categories such as silicone sealants, water-based sealants, other sealants, asphalt paint and water-based coatings, six major application fields such as construction engineering, home decoration, container manufacturing, steel structure manufacturing, petrochemical equipment, ships and yachts, as well as an industrial structure where emerging businesses represented by water-based coatings interact healthily with mature businesses represented by sealants and asphalt paint.
The upstream industry is single, and the downstream market has broad prospects. The company is mainly engaged in R&D, production and sales of sealants and coatings. Its upstream industry is relatively single, mainly the chemical materials manufacturing industry. The cost of upstream raw materials has a great impact on the company's performance. Coatings are widely used in all fields of the national economy and are ubiquitous and indispensable functional materials. Downstream in the paint industry are machinery manufacturing, transportation, light industry, chemicals, construction, and cutting-edge defense industries, which protect and decorate substrates such as metal, concrete, and wood. Sealants are “additives” in industries such as construction and industrial equipment manufacturing. Although the dosage and cost account for a small proportion of the total cost of the application field, they often play a decisive role in product performance.
The main business revenue changes in the sealant industry are relatively stable. The overall trend is increasing. The main markets are divided into two categories: the construction sealant market and the industrial sealant market.
Dual engines for paint and sealants have developed, and future performance is improving. Since its establishment, the company has been focusing on R&D, production, sales and service of paint and sealant products. The company's products are widely used in construction engineering, home decoration, container manufacturing, steel structure manufacturing, petrochemical equipment and marine yacht equipment. In recent years, due to the influence of the “oil to water” policy in the paint industry, the revenue of the company's paint business has declined slightly, but in 2017, benefiting from the expansion of the water-based paint business, the scale of the company's paint business rebounded. At the same time, the revenue of the company's sealant business maintained steady growth.
Fundraising projects expand production capacity and form profit growth points. The capital raised by the company is mainly used for Jitai Chemical's neutral silicone sealant and water-based paint industrialization base project. The project plans to create an annual production capacity of 40,000 tons of neutral silicone sealant and 10,000 tons of water-based paint through the construction of production lines for neutral silicone sealants and water-based coatings. The project products are all green and environmentally friendly products. The total investment of the project was 291.1801 million yuan. The construction period was two years, and the production period reached three years.
Profit forecasts and investment recommendations. We expect the company's net profit for 18-20 to be 52.86 million yuan, 71.66 million yuan, 97.93 million yuan respectively, and EPS of 0.44, 0.60, and 0.82 yuan respectively. Considering that the company's new production capacity for silicone sealants and water-based paint products will be released in 2019, which will have a great impact on performance, the target price was 22.8 yuan (PB is 5.6) based on the industry average of 38 times PE in '19, covering the “increase in holdings” rating for the first time.
Risk warning. The risk of a sharp rise in raw material costs; the progress of fund-raising projects falling short of expectations; the risk of increased competition in the industry.