Shandong fluorosilicon giant, highly integrated industrial chain gives the company excellent competitive strength and a leading production base for fluorosilicon materials in the country. In the fluorochemical sector, the company has a top-down layout of hydrofluoric acid-refrigerants-fluorine-containing polymer materials. In the silicone-chemical sector, the layout includes monomers, intermediates, deep-processing products, and various accessories are recycled between the fluorosilicon industry chains, and the degree of integration of the industrial chain is second to none in the industry. The strong integration advantage gave the company a significant competitive advantage, maintained good profits when the industry was at a low point, and achieved ROE levels of 23.87%, 25.54%, and 18.57% in 2017, 2018, and 2019, respectively.
Refrigerants: The second-generation refrigerant boom is expected to be maintained. Third-generation agents have basically completed the construction company, which has the largest second-generation refrigerant R22 and various third-generation refrigerants in the country. Since 2018H2, prices of second-generation refrigerants have been relatively strong, but prices of various third-generation refrigerants have declined along the way following economic downturn, trade wars, and domestic and foreign difficulties due to the spread of the global epidemic. Currently, prices have fallen to historic lows. However, in terms of second-generation agents, prices are expected to remain strong because industry supply is strictly limited by allocation indicators and demand is relatively stable. The company's largest R22 production capacity in the country is expected to contribute steadily to profits in the next few years.
However, the price of third-generation drugs has bottomed out. Early supply-side enterprises have basically come to an end to expand production and seize quotas, the period of drastic expansion of production capacity has basically ended, while the shortfall on the demand side has basically been exhausted, and subsequent prices are expected to rebound.
Fluorinated polymers: Prices are relatively strong. The main future development direction of the fluorine chemical industry Fluorinated polymers, on the one hand, require upstream fluorinated refrigerants as raw materials, and most products have technical difficulties, so they have a considerable threshold; on the other hand, they have a continuously expanding market capacity due to their special properties and endless new products and models, which is one of the main growth points of the fluorine chemical industry in the future. The company has the leading production capacity of fluoropolymer materials in the country and is actively exploring new products, and is expected to continue to benefit from industry trends.
Silicone: There is a lot of planned production capacity, prices have bottomed out, and the downward space is limited. Due to the huge production capacity expansion plan starting in 2020, it is difficult for the silicone industry to continue to be brilliant, but on the one hand, prices are now close to the industry cost line, and there is limited room for a sharp decline in the economy; on the other hand, with economic recovery, downstream demand has gradually resumed growth; moreover, the company also has a high industrial chain integration advantage and is expected to maintain steady profitability.
Profit prediction
Under the continuous impact of downstream demand in 19-20, it is unavoidable for the company's performance to decline, but we judge that the company is expected to maintain its competitive advantage with its integrated advantages. We predict that the company's net profit for the years 20, 21, and 22 will be 1,889 million, 15.72, and 1,897 billion yuan respectively, corresponding to 4.97, 4.07, and 3.38X PE, respectively, maintaining the “buy” rating.
Risk Reminder
The pandemic or worsening international trade situation impacts downstream demand; management agency risk