Overview of events
Event 1: the company released its performance KuaiBao on February 29, 2020. It is estimated that its operating income will be 1.245 billion yuan in 2019, an increase of 18.73% over the same period last year, and its net profit will be 63 million yuan, an increase of 76.55% EPS0.07 yuan over the same period last year.
Event 2: on February 29, 2020, the company issued a notice showing that recently, the SEP products for optical fiber ointment produced by Zhongli synthetic materials, a subsidiary of the company, have been successfully mass-produced and supplied in bulk to downstream enterprises.
Analysis and judgment:
The product structure of the main business POF has been optimized, and the revenue and profit have increased steadily.
According to the prospectus, the company is the first POF manufacturer in the country and the second in the world. Its products are exported to more than 60 countries and regions around the world, and are widely used in the outer packaging of light products in food, daily chemical, education and other industries. From 2016 to 2018, the operating income of the company's POF sector increased from 445 million yuan to 594 million yuan, with an increase of 33.53%. The overall gross profit margin of the company's POF sector remained above 35%. Since listing, the company has continuously optimized the product structure of POF plate, and the proportion of high value-added POF cross-linked film in total revenue of POF plate has increased from 20.98% in 2010 to 59.30% of H1 in 2019. In the future, the company will continue to optimize the product structure, reduce the production of low value-added products, and concentrate on the development of high-end cross-linked films and high-performance films. The company's POF sector continues to grow revenue and profits are the cornerstone of the company's long-term development.
The inflection point of thermoplastic elastic material appears, and it is expected to become a new profit growth pole in the future.
The company began the production and sales of thermoplastic elastic materials in the second half of 2017 and continued to sell its products in 2018, but as the thermoplastic elastic material plate products are in the initial stage of operation for a long time, the production equipment needs running-in optimization. The production and sales are all basic products, and the gross profit margin has been negative, which is the main reason for dragging down the company's historical performance. According to the company's historical financial data, the company's overall gross profit margin has increased significantly since Q1 in 2019. Combined with the product information disclosed in the mid-2019 report, we believe that the thermoplastic elastic material sector has been losing money since Q1 in 2019 and gradually made a profit in the second half of 2019. We expect that with the emergence of the inflection point of the thermoplastic elastic material plate, the company's future profitability will be significantly improved.
5G optical fiber ointment with SEP to achieve mass production to help China's new infrastructure
Ointment is a necessary material for optical fiber moistureproof and one of the key materials for 5G communication network, and SEP for optical fiber ointment is the core raw material of optical ointment. Due to the extremely high technical barriers, the SEP market has been monopolized by international giants such as Coten of the United States and Colerie of Japan. Coten of the United States, in particular, accounts for more than 60% of the domestic SEP market. The year 2020 is the first year of large-scale construction of 5G. According to FTTHcouncil estimates, the number of optical fibers needed by 5G base stations will be more than 16 times that of 4G. In the future, the demand for new high-capacity optical fibers will be more urgent, bringing the next economic cycle. The huge increase in market demand for optical fiber ointment SEP will create a huge market space, coupled with the replacement demand created after the optical fiber ointment used in the past has reached its useful life, it is estimated that the market capacity of optical fiber ointment SEP in China will reach 1-15000 tons next year. According to the FTTH council report, the current price of SEP for Zhongli technology optical fiber ointment is about 40,000 yuan per ton, which is more than 30% lower than that of similar imported products. The comprehensive performance of the SEP products for optical fiber ointment produced by the company is similar to that of foreign imported products, which can replace imported products and has a good performance-to-price ratio. According to the company's announcement data on February 29, 2020, the company's SEP products for optical fiber ointment have been successfully mass-produced and supplied in batches to downstream enterprises. With 5G entering large-scale construction, the market space of SEP for optical fiber ointment will be greatly increased, and the sales volume of this product is expected to be enlarged rapidly in the future.
Investment suggestion
We estimate that the company's operating income from 2019 to 2021 will be 1.445 billion yuan, 1.491 billion yuan, respectively, and the net profit will be 0.63 yuan, 155 yuan, 218 million yuan, respectively, and the corresponding EPS will be 0.07 yuan, 0.17 yuan, 0.24 yuan, respectively. The current share price is 6.50 yuan, and the corresponding PE is 84-35-24 times. The company is a global POF film leading enterprise, thermoplastic elastic materials ushered in an inflection point, optical fiber ointment with SEP to achieve mass production, optimistic about the future growth of the company, for the first time to cover the "overweight" rating.
Risk hint
Product prices fall, 5G base station construction speed is not as fast as expected and other risks.