Company profile
Sanhe Fine Chemical is a fine chemical product manufacturer that mainly manufactures, develops and sells a diversified portfolio of fine chemical products, including (1) aerosols, (2) silicone adhesives, (3) synthetic adhesives, and (3) other miscellaneous products, such as architectural coatings, oils and wood paint. The company's two main brands are “SANVO Sanwa” and “FullTeam Futa.” The company has four production bases located in Guangdong Province, with a total site area of about 126,000 square meters. The MV production base plans to centralize the production of aerosols and set up 22 new aerosol production lines and related machines and equipment, with a design capacity of about 30,000 tons per year.
Chinese and Thai views
China's fine chemical products market is growing steadily, focusing on aerosol products: fine chemical products include industrial and automotive aerosol products, silicone adhesives and synthetic adhesives, mainly used in various downstream industries, especially the building construction industry, real estate industry and automobile industry. According to the Frost & Sullivan report, the sales value of aerosols in China is expected to maintain a compound annual growth rate of 11.1% between 2019 and 2023, while sales volume will reach about 3.2 billion cans by 2023. The strong performance of China's industrial and automotive industries has led to an increase in demand for aerosol products such as lubricants, paint and waxes. Sales of industrial and automotive aerosol products are expected to grow at a CAGR of 6.6% from 2019 to 2023.
In terms of business performance: In the 2016-2018 fiscal year and ending June 30, 2019, the company's operating income was RMB 510 million, RMB 670 million, RMB 770 million and RMB 370 million respectively. Revenue from sales of various chemical products came from sales of various chemical products, of which aerosol revenue accounted for about 50% of total revenue. Most of the company's revenue comes from sales to Chinese dealers, accounting for about 80.6%, 76.9%, 90.0% and 94.5% of total revenue respectively; gross margins were 26.1%, 22.9%, 24.2% and 30.5% respectively. There was a slight decline in 2017 due to the increase in the prices of the main raw materials that produce aerosols, while the average sales price of aerosols remained relatively stable; the company purchased different types of raw materials from suppliers, with the five major suppliers accounting for 31.5%, 32.9%, 28.8% and 29.7% of total purchases; the balance to debt ratios were respectively At 1.9 times, 1.4 times, 3.4 times and 2.5 times, the company may face liquidity risks; net interest rates are 4.7%, 3.0%, 3.0% and 4.5%, respectively.
In terms of valuation: Based on the world's 440 million share capital after the public offering, the company's market value was HK$51-600 million, which is lower than the average of the Hong Kong stock industry. The price-earnings ratio of the company in 2018 was about 19.3-22.6 times, higher than the industry average; the net price-earnings ratio was about 3.75-3.89 times, higher than the industry average. In terms of profitability, ROE and ROA in 2018 were 41.8% and 20.4%, respectively, higher than the industry average. The sponsor has not participated in the Main Board listing project in the past two years, so the sponsor's track record is of no reference value. Considering that the company's investment during the pre-IPO period was discounted by nearly 20% compared to the current sale price, and there is no ban period. Furthermore, there are no Hong Kong stock companies of the same type as reference. We only compared a few traditional manufacturing companies. The valuation is still too high. We gave them 54 points and rated them “no subscription.”
Risk warning: (1) market competition risk, (2) rising raw material prices, (3) reliance on an inherent dealer network
