Incident description
The company released its report for the third quarter of 2020: the first three quarters achieved operating income of 5.3 billion yuan, an increase of 21% over the previous year, net profit attributable to 120 million yuan, an increase of 2% over the previous year, and net profit after deduction of 0.7%; the third quarter alone achieved operating income of 200 million yuan, an increase of 38% over the previous year, net attributable profit of 0.5 billion yuan, an increase of 47% over the previous year, and net profit after deducting 46%.
Incident comments
Revenue bucked the trend, showing the true character of a leader. Revenue increased 21% year-on-year in the first three quarters. Considering that the company's export revenue accounted for about 40% and has been greatly affected by overseas epidemics since this year, we believe that the company's revenue growth reflects its strong market competitiveness, or is due to import substitution in the high-end market and the increase in share in the middle and lower end markets.
The rate for the period was about 16.0%, which was basically the same as the previous year. The sales and R&D fee rates decreased by 1.7 and 0.1 pct respectively, and the management and finance rates increased 0.2 and 1.5 pct respectively. The final attributable net interest rate was 21.9%, a year-on-year decrease of 4.3 pct.
The decline in costs is beginning to be reflected. The company's revenue growth accelerated in the third quarter, mainly due to the gradual recovery in overseas demand and the rapid seizure of the market by the Merle brand with its cost performance advantage. The gross margin for the third quarter alone was about 42.8%, a year-on-year decrease of 3 pct, but an increase of 4.6 pct over the 2nd quarter may be due to the gradual self-supply of raw materials. The rate for the period was 15.0%, a year-on-year decrease of 2.4 pct. Among them, sales, management, and R&D rates decreased by 3.1, 1.6, and 0.4 pct respectively, and the financial rate increased by 2.7 pct; the final net interest rate attributed was about 24.8%, an increase of 1.5 pct over last year, a significant increase over the 2nd quarter.
The world's first titanium dioxide production line with an extraction process may soon be put into operation. As of September 30, the company's projects were under construction of 280 million yuan, an increase of 0.2 billion yuan over last year; at the same time, the company's fixed assets were 660 million yuan, an increase of 200 million yuan over the previous year, mainly due to the conversion of projects under construction into fixed assets. Judging from the increase in construction projects and fixed assets, production is currently progressing normally. The first production line with an annual output of 100,000 tons of titanium dioxide and iron oxide may be put into operation soon. The line is expected to improve traditional processes in terms of energy consumption, safety, environmental protection, and quality.
The core competitiveness of the company lies in innovation. Years of deep cultivation have enabled the company to establish strong technical barriers. Kuncai Technology is the world's leading pearlescent material industry leader. Pearlescent materials fall into the category of inorganic effect pigments. In the future, the company will officially enter the inorganic pigment market represented by titanium dioxide and iron oxide. From market segments to mainstream markets, the company's growth space is fully open, but the core of the innovative spirit remains the same. We believe that the company's technical barriers are reflected in two aspects. First, high-end pearlescent materials, with surface treatment technology and synthetic mica technology, break global high-end market barriers and seize leading overseas market shares; second, core raw materials, innovative use of hydrochloric acid extraction methods to produce titanium and iron chloride and its oxides at low cost, which is expected to disrupt the pattern of the global titanium dioxide industry.
Core point of view: The company continues to benefit from technological innovation dividends. After entering the mainstream market for inorganic pigments from the pearlescent materials market, there is plenty of room for future growth. The company plans to build 500,000 tons of high-end titanium dioxide and 500,000 tons of high-end iron oxide projects in the future. Future growth is worth looking forward to. The performance for the year 2020 to 2022 is expected to be 2.0, 540, 1.18 billion yuan, corresponding to 89, 33, 15 times the valuation, maintaining the purchase rating.
Risk warning
1. Overseas epidemic control is lower than expected;
2. The progress of putting the new project into operation fell short of expectations.
