The company is a large-scale and technology-leading manufacturer of electrode foil for aluminum electrolytic capacitors in China. Currently, it has a production capacity of 11.60,000/7.3 million square meters of medium- and low-voltage chemically formed foil. Benefiting from strong demand in the downstream market, the company's production and sales have been booming in the past two years. At the same time, the gross profit per unit has increased year by year. In 2017 and 2018, it achieved net profit of 90 million yuan/150 million yuan respectively, +15.97%/+65.87% over the previous year.
Electrode foil industry: Supply elasticity is weakening, and demand continues to be released. Electrode foil is a key material needed to manufacture aluminum electrolytic capacitors, and is widely used in consumer electronics, industry, communications and other industries. Consumer electronics: The development of new technologies drives steady growth in demand. Communications: 5G construction is speeding up, and the advent of a new round of communication equipment construction cycle is further boosting demand. New energy vehicles & new energy power generation: Bringing new growth points to the demand for aluminum electrolytic capacitors. On the supply side, environmental protection in the industry has become stricter in the past two years. A large number of small electrode foil companies that do not meet environmental protection standards have been shut down, and high environmental protection thresholds have weakened supply elasticity.
Electricity costs, technology research and development, and product services build the company's competitive advantage. Electricity costs account for more than 40% of production costs, and the cost advantages of the company's Ya'an and Shizuishan bases are remarkable. Furthermore, the company's R&D system is perfect, and technological innovation continues. The advantage of full product coverage also helped the company build brand awareness.
Fundraising project: Expanding & upgrading electrode foil production capacity to consolidate core competitive advantages. The implementation of the fund-raising project will add 11 million square meters of foil production capacity, an increase of 36.79% over the current level.
Considering the 18-month construction period of the company's fund-raising project, production capacity is expected to increase dramatically by 2021, production and sales will increase significantly, and production costs will be further reduced after commissioning. The company's net profit for 2019-2021 is estimated to be 155 million yuan, 168 million yuan, and 235 million yuan respectively. The corresponding EPS is 0.75 yuan, 0.81 yuan, and 1.13 yuan respectively. PE corresponding to the stock price of 16.13 yuan/share on August 12 is 21.6X, 19.9X, 14.3X. The first coverage gave the company a “prudent increase in holdings” rating.
Risk warning: The growth in downstream demand for electrode foil fell short of expectations; the speed at which new production capacity was put into operation in the industry was too fast; environmental remediation efforts fell short of expectations, and enterprises were shut down and production resumed on a large scale; electricity costs rose more than expected.