Incident: The company announced that it expects to achieve net profit of 7,500 to 9081 million yuan in 2019, an increase of 36.29% to 65.02% over the previous year.
The PCB ink and special coating business is developing steadily: the company specializes in electronic chemicals such as PCB ink and special coatings, and its products are mainly used in the fields of printed circuit boards, precision processing of electronic products, and consumer electronics. It has independent research and development capabilities for high-performance special inks and special coatings, and is a leading manufacturer of special inks and special coatings in China. In 2017, the company acquired Jiangsu Hongtai and entered the field of light-curing coatings. Hunan Sunshine was acquired in 2018 to continue to strengthen the layout of new UV materials. At the same time, the company acquired Hangsheng Energy to enter the lithium-ion battery electrolyte field, and commissioned Taiwan Guangzhi to cooperate to develop a photoresist project to inject new impetus into the company's long-term development.
Localization of PCB ink ushered in development opportunities: According to direct consultation, China has become the world's first PCB base. In 2018, the PCB output value in mainland China was 32.6 billion US dollars, accounting for more than 50% of the world. PCB ink is one of the key raw materials for the production of PCBs, and the market trends are the same as PCBs. Thanks to the rapid growth in 5G base station shipments, domestic PCB demand continues to grow. At the same time, the PCB industry is rapidly shifting to China, and the domestic ink industry has ushered in development opportunities. The company's current production capacity of 6,500 tons of special ink has been fully produced and sold. The fund-raising project “New Photosensitive Material Project with an Annual Output of 8,000 Tons” was completed and commissioned in September 2019, and production capacity is about to be released. The company's new production capacity helps the company break through production capacity bottlenecks and lays a solid foundation for the company to further develop high-end customers and products.
The paint business is developing rapidly and the space is broad: Jiangsu Hongtai, a wholly-owned subsidiary, is one of the few domestic enterprises with R&D capabilities for high-performance special coatings. The core product, UV curing materials, is one of the main environmentally friendly coatings used in the consumer electronics field and auto parts fields. The company's paint business achieved a sharp increase in revenue from 37.02% to 58.77% in 2017-2019H2. With the trend of demetallization of mobile phone cases in the 5G era, the company's paint ushered in a new opportunity. At the same time, the trend of switching and the rapid development of wearable devices driven by new technologies such as 5G and folding screens have ensured room for growth in downstream demand and brought benefits to the further development of the company's coating business. In the field of auto parts, the company has been committed to domestic substitution of automotive coatings for many years, and automotive lamp paint products have been certified by AMECA authorities. At present, the company's products have been gradually recognized by well-known companies such as Huawei, OPPO, Lenovo, CNPC, and ALBEA.
Investment advice: We expect the company's EPS in 2019-2021 to be 0.52/0.79/1.15 yuan respectively. The first purchase was given a -A investment rating. The target price for 6 months is 28.7 yuan, which is equivalent to the 2019-2021 PE55/36/25 times.
Risk warning: downstream demand falls short of expectations, risk of investment in research and development of new materials, etc.