Summary of the report
This paper will evaluate the future profitability of Kuncai Technology from the following angles: (1) the entry barrier of pearlescent material industry is high, and the leading enterprises have monopoly advantage.
(2) the company adopts extraction method to prepare titanium dioxide, and the profit margin is improved.
(3) this paper calculates the profitability of 500000 tons of titanium dioxide extraction project and 200000 tons of titanium dichloride project.
Industry logic
The barrier of pearlescent material industry is high, and the market share of domestic CR3 enterprises is 43%. Well-known buyers of pearlescent materials usually have high technical requirements for manufacturers and a long certification cycle (5-8 years), resulting in a high degree of concentration in the industry. Domestic CR3 enterprises led by Kuncai Technology have a market share of 43%, and Kuncai Technology has a market share of about 25%.
The domestic market space for pearlescent materials is 3.2 billion yuan in 2020, with a compound growth rate of 15% in the past five years. The domestic market size of pearlescent materials is 2.4 billion yuan in 2018, and the annual compound growth rate of domestic market scale from 2014 to 2018 is 15%. If calculated by this method, the domestic pearlescent material market will be 2.8 billion yuan in 2019 and 3.2 billion yuan in 2020. In the downstream industry of pearlescent materials, the cosmetics market is growing the fastest. Pearlescent materials are widely used in coatings (40%), cosmetics (15%), automobiles (10%) and other fields. The cosmetics market grew at a compound annual growth rate of 14% from 2010 to 2019, making it the fastest growing application field downstream. In the automotive field, the global market space for automotive-grade pearlescent materials will reach 2.1 billion yuan, 2.2 billion yuan and 2.4 billion yuan from 2020 to 2022.
Corporate logic
The company's extraction titanium dioxide technology has obvious cost advantages. The traditional titanium dioxide production technology mainly includes sulfuric acid titanium dioxide technology and chlorination titanium dioxide technology. The former has relatively simple process and equipment, but high energy consumption and serious pollution; chlorination titanium dioxide technology and equipment is complex, and the raw material requirements are high. The production technology of titanium dioxide by new technology extraction is the third generation technology, which has the advantages of the first two generations, and the comprehensive performance of the product is higher.
Capacity expansion companies' profitability upward. The first 100000 tons / year titanium dioxide project independently developed by the company in the world is expected to be put into production in October 2020, and the long-term company will form a production capacity of 500,000 tons / year titanium dioxide and iron oxide. We estimate that the gross profit of 500000 tons of titanium dioxide extraction project will be 4.7 billion yuan.
Profit forecast and investment advice
Based on the analysis of the company's core business, we estimate that the company's EPS will be 0.55,1.27,1.96 yuan respectively from 2020 to 2022, and the corresponding PE will be 59.2,25.7 and 16.7 times respectively based on the closing price on September 25, 2020. The company's performance will maintain a high growth rate in the next three years, with PEG < 1, giving it a "recommended" rating.
Risk hint
The risk of increasing the price of raw materials, the risk of trade friction and the slow progress of production capacity are slower than the planned risk of the company.
