Incident: The company announced an advance performance increase announcement on January 25. The net profit returned to the mother in 2017 is expected to be 7385-78.52 million, an increase of 177% to 194% over the previous year. Among them, Q4's net profit was 3706-41.73 million, an increase of 386%-447% over the previous year, and an increase of 92%-116% over the previous month. The company's performance slightly exceeded expectations.
The volume and price of epoxy resin have risen sharply, and the company's performance has improved dramatically. The sharp increase in the company's performance in 2017 was mainly due to increased product sales and higher product prices in the second half of the year. Since mid-'17, continuous high pressure has affected the supply of epoxy resins, and the pattern of supply and demand in the industry has improved markedly. The price of epoxy resin rose rapidly from 14,000 yuan/ton in July '17 to 28,000 yuan/ton in December. The tracking price difference rose from 4,000 yuan/ton and remained at 8,000 yuan/ton. The company's net profit for Q1-Q4 in a single quarter was 9.52 million, 7.95 million, 19.33 million, and 3706-41.73 million respectively. The company's profit in the third quarter began to improve significantly from month to month, fully realizing the price increase. There will be almost no new production capacity in the industry other than companies in the next two years, and profit levels are expected to remain high.
Downstream PCB manufacturers have expanded production on a large scale, and demand for electronic-grade epoxy resins has increased dramatically. Driven by automotive electronics and virtual reality, the domestic PCB industry is expected to usher in major development. Mainstream PCB manufacturers will expand production capacity by more than 60% in the next 2-3 years, driving domestic demand for electronic-grade epoxy resins to grow rapidly from 350,000 tons to 500,000 tons.
The release of new production capacity is imminent, fully benefiting from the industry boom. Hongchang Electronics currently has a production capacity of 73,000 tons of epoxy resin, and the production capacity of 117,000 tons is expected to be mass-produced in the first quarter of 2018. Of these, electronics-grade epoxy resin accounts for more than 50%, which is expected to fully benefit from the expansion of production in the downstream PCB industry. Currently, the price of epoxy resin has been slightly adjusted due to factors such as the off-season, and it is expected that demand in the peak season after the Spring Festival will drive prices to continue to rise. Based on production capacity estimates of 190,000 tons, for every 1,000 yuan/ton increase in the price of epoxy resin, the company's net profit increased by 138 million yuan, and EPS increased by 0.22 yuan.
Maintain a “buy” investment rating. The company's net profit for 17-19 is predicted to be 76 million, 265 million and 405 million yuan respectively, EPS is 0.12 yuan, 0.43 yuan and 0.66 yuan respectively, and the corresponding PE is 51 times, 15 times and 10 times, respectively. Maintain a “buy” rating.
Risk warning: The risk of falling product prices and falling production of fund-raising projects falling short of expectations.