The company uses a circular economy model to maintain the steady development of traditional performance. At the same time, if the new business is completed as scheduled in 2021, it will provide great performance support for the company. We believe that the company's market value has a lot of room for improvement. Maintain the company's net profit forecast for 2020/21/22 at 1,075/15.61/1,802 billion yuan, maintaining a target price of 15.30 yuan and a “buy” rating.
The sluggish phase is over, and the performance is awaiting restoration. The company disclosed its report for the third quarter of 2020. In the first three quarters, it achieved total operating income and net profit of 3,918 million yuan and 851 million yuan, respectively, -3.65% and -9.67%, respectively; the third quarter achieved operating income and net profit of 1,406 million yuan and 296 million yuan, respectively, +6.51% and +1.78%, respectively. It has gradually emerged from a period of sluggish performance caused by demand affected by the pandemic.
The expansion of sulfonated pharmaceutical business is expected to continue to drive the company's performance growth. With the launch of BA\ TA series products, the added value of the company's sulfonated pharmaceutical products has further increased, the proportion of high value-added products has further increased, and gross margin has also increased significantly compared to before. Earlier, the company announced that the board of directors deliberated and passed the bill to expand the project production and build a waste acid cracking project. After the expansion of production is completed, the company's sulfonated pharmaceutical production capacity will increase from the current 30,000 tons to 60,000 tons, and BA production capacity will increase from the current 2,000 tons to 6,000 tons. It is expected that the project will be put into operation by the end of 2020, which is expected to bring significant performance improvements to the company in subsequent years.
Ethylene PVC production capacity is being built and is expected to contribute to stable performance after launch. Based on current chlor-alkali production capacity, the company previously announced that it is planning to build a 300,000-ton VCM\ PVC project, which is expected to begin official operation in 2021. On the one hand, the company may rely on its geographical advantages to steadily sell PVC terminal products, and on the other hand, it is expected that this will also be used to solve the chlorine consumption problem associated with the chlor-alkali process. The company's integrated chemical and energy layout will continue to deepen, and the utilization rate of raw materials and physical energy is expected to further improve.
Actively deploy the hydrogen energy industry chain, and performance can be expected to soar. As environmental protection and energy scarcity become more and more serious, there is no time to delay the development and utilization of clean energy, and the hydrogen energy industry has entered a rapid expansion channel. The company is seizing new energy opportunities, using its location and the resource advantages of 10,000 tons of low-cost hydrogen by-production to enter the hydrogen energy field, and further deploy important links in the industrial chain such as hydrogen production, hydrogen storage, and hydrogenation. Furthermore, the company's liquid hydrogen transportation business is expected to enable the company to take the lead in seizing the technological peak in the hydrogen storage and transportation market.
Risk factors: fluctuations in raw material prices; fluctuations in photovoltaic industry policies; implementation of hydrogen energy policies falls short of expectations.
Investment suggestions: The company uses a circular economy model to maintain the steady development of traditional performance. At the same time, if the new business is completed as scheduled in 2021, it will provide great performance support for the company. We believe that the company's market value has a lot of room for improvement. Maintain the company's net profit forecast for 2020/21/22 at 1,075/15.61/1,802 billion yuan, corresponding to the 2020/21/22 EPS forecast of 0.75/1.09/1.26 yuan, and maintain the target price and “buy” rating of 15.30 yuan (corresponding to 14 times PE in 2021).