Incident: The company announced that the 2017 convertible bond fund-raising project “Construction Project with an Annual Output of 20,000 Tons of Phenol and 31,100 Tons of Benzodiol Derivatives - Phase I Project” has now met the conditions for commissioning and trial production.
Comment:
Projects such as diphenol and derivatives, and iodine contrast agents are expected to enter the harvest period. The company invested in the construction of two projects for phenol and derivatives and iodine contrast agents in Jishan Industrial Park in Pengze, Jiangxi. Among them, it produces 20,000 tons of phenol per year, 3.
The total investment for the 110,000 tonne diphenol derivatives project was 1.26 billion yuan. The company expects to achieve annual sales revenue of 163,300 million yuan and net profit of 191 million yuan after delivery. The commissioning of this project can make the company a strong competitor in the global diphenol industry chain and further enhance the company's market influence in the fields of food additives and feed additives. Earlier, the company also announced that the 1,000-ton iodine contrast agent and intermediate project met the conditions for commissioning. The iodine contrast agent API products produced can be marketed and sold in different market regions around the world after completing relevant reviews and approvals or certifications (including CDE review and approval, CEP certification, FDA certification, etc.). Iodine contrast agents and intermediates project-related products are widely used in enhanced CT imaging tests. After production, the company will add iodine contrast agent APIs and intermediate products on the basis of the existing single-vitamin API business to achieve a strategy of vertical integration from fine chemicals to pharmaceutical intermediates and pharmaceutical raw materials. The total project investment is 320 million yuan. The company expects to achieve annual sales revenue of 970 million yuan and net profit of 129 million yuan after delivery. As projects such as phenol and derivatives and iodine contrast agents are gradually put into operation, the company's performance is expected to enter a period of growth.
The acquisition of LANXESS South Africa promotes collaborative development of the company's business. LANXESS South Africa is the only chromium salt manufacturer in the world near the South African mining area with the richest “chrome ore”, which is the core raw material for chromium salts. The main products include sodium dichromate, chromic acid, chrome tanning agents, etc. The revenue and net profit in 2018 were 530 million yuan and 486.79 million yuan respectively. Delivery has now been completed. The delivery date is January 10, 2020. The performance of subsidiaries was consolidated to enhance the company's EPS.
Fundraising projects open up space for the company to grow. The company will raise no more than 1.20 billion yuan of additional capital for the construction of a natural fragrance project with an annual output of 30,000 tons, the construction of the Brother Science and Technology Research Institute, and supplementary working capital. The natural fragrance project with an annual output of 30,000 tons is committed to building a complete turpentine industry chain with a perfect product structure and strong comprehensive competitiveness. The total project investment is 889 million yuan, and the construction period is 3 years. The company expects to achieve annual sales revenue of 1,531 million yuan and net profit of 206 million yuan in the first year after delivery. The total return on investment (after tax) is 23.20%, and the payback period (excluding the construction period) is 54 years (excluding the construction period). The project was constructed in two phases. The first phase of the project built 6,000 tons of dihydrolauryl alcohol, 500 tons of α-terpineol and 5,300 tons of pine oil, 2000 tons of laurene, totaling 16,800 tons, and the second phase built 1,000 tons of laurene, 1,000 tons of isolorbyl acetate, 3,000 tons of amberone, 8,000 tons of synthetic camphor and 200 tons of sandalwood ether. The total products of the second phase of the project were 13,200 tons. The company's private fund-raising was approved on August 25, 2020, and the construction of new projects is expected to open up space for the company to grow.
Profit forecast and rating: The company's net profit for 2020-2022 is estimated to be 126/2.02/298 million yuan respectively, and the corresponding PE is 47.4/29.6/20.1 times respectively. Since the company's new Jiangxi project is expected to enter the harvest period, the fund-raising project opens up room for growth and maintains the “buy” rating.
Risk warning events: falling prices of vitamin products; construction and sales of the Jiangxi Phase II project falling short of expectations; risk of fund-raising projects falling short of expectations.