Incidents:
Domestic propane oxide (PO) prices have continued to run at a high level of 13,000 to 18,000 yuan/ton since September this year. On December 21, the latest price of the main factory increased by 400 yuan/ton. Among them, Shandong Xinyue's current remittance price was 17700-17800 yuan/ton, Zhenhai Refining and Chemical's Leander's cash was delivered to 18,300 yuan/ton, Shandong Binhua quoted 17600-17700 yuan/ton in cash, and Yantai Wanhua delivered 18,000 yuan/ton of cash to the surrounding area.
Key points of investment:
Downstream PO demand has soared under the epidemic, and the long-term demand growth rate has been stable
The main products downstream of propane oxide include polyether polyols, propylene glycol, dimethyl carbonate, propylene glycol ether, etc., accounting for about 75%, 15%, and 7%. Polyether polyols are mainly used to produce polyurethane foam, and downstream applications are concentrated in the fields of furniture and appliances, building materials, and the automotive industry. Since the COVID-19 pandemic spread globally, demand for crude oil and most downstream chemicals has been hit hard. In the short term, the price of propane oxide once fell to a historic low of 6,700 yuan/ton. Since then, due to rising demand for homes brought about by falling interest rates and demand for furniture, appliances, and building materials has risen rapidly, and PO prices have risen all the way up. Subsequent combined with the US Department of Commerce's reversal investigation of mattresses in seven Southeast Asian countries and some supply-side factors, PO prices reached historic highs, and the price index once approached 19,000 yuan/ton. Even excluding the epidemic factor, global demand for improvements such as furniture and appliance upgrades, home heating, and automobile purchases has been growing steadily over a long period of time, providing solid support for the PO demand side.
Domestic process routes are facing replacement. The HPPO method is the most efficient and clean. Judging from the distribution of global production capacity, Asia is the main focus, with China accounting for the largest share in Asia. Domestic production capacity is currently dominated by the chlor-alcohol method, accounting for more than 50%, and the regional distribution is dominated by Shandong. Since the chlor-alcohol method consumes chlorine gas to oxidize propylene, chlorine is not used. Each ton of PO product will produce 40 to 50 tons of chlorinated wastewater and 2 tons or more of calcium chloride solid waste. At the same time, hypochlorous acid in the reaction seriously corrodes equipment. As environmental protection and safety pressure increase, there is an urgent need to replace it with a more efficient and clean process. In the current new PO production process, the ethylbenzene co-oxidation method (PO/SM) and isobutane co-oxidation method (PO/MTBE) overcome the sewage and corrosion problems of the chlor-alcohol method. The disadvantage is that the price of co-produced products may restrict PO production. At the same time, the process is long and the equipment investment is high; the isopropyl peroxide hydroxidation method (CHP) also overcomes the sewage and corrosion problems of the chlorinated alcohol method, and there are no co-produced products or equipment investment compared to the co-oxidation method, but the process of isopropyl peroxidation, circulation, separation, etc. is still too long; compared to that, the process of isopropyl peroxide oxidation, circulation, separation, etc. is still too long; compared to that, the process of isopropyl peroxidation, circulation, separation, etc. The shortest and no hydroxide (HPPO) process Co-produced products, high yield, and no pollution. They are an incentive process in the “Industrial Structure Adjustment Guidance Catalogue (2019 edition)” and are an ideal choice to replace the chlor-alcohol method in the future.
The company's 150,000-ton HPPO system is about to be put into operation, opening up space for performance growth, the company's fund-raising project — a 150,000 ton/year HPPO legal PO project with independent intellectual property rights is about to be put into operation, supporting the construction of a 180,000 ton (60%) hydrogen peroxide project and the company's site selection, bringing greater convenience in logistics and transportation. Combined with the advantages of low construction investment, the low comprehensive cost will be an important moat in future market competition. Excluding peak prices, judging from the reasonable price range of PO, the company's low cost advantage can be maintained and further increased profits. Furthermore, the company cooperates with domestic high-quality chemical enterprises through the form of technology licensing, which shows that the company's own technology has been recognized by other producers in the market, and has further broadened the company's future business path, thus opening up room for growth in performance in the next few years.
We expect that the commissioning of the company's 150,000 tons/year PO project will greatly increase revenue. At the same time, due to the growth on the PO demand side and the tension on the supply side, the market expects PO prices to remain relatively high next year. Combined with the revenue from some takeout of 180,000 tons of hydrogen peroxide (60%) supported by the company, the comprehensive profit margin of the company's products will increase significantly. From 2021 to 2022, with the 150,000-ton PO project from trial production to a gradual increase in load, the company's annual PO output will increase in steps, and revenue is expected to accelerate across the board. From 2020 to 2022, the company's net profit is expected to be 01 million yuan/296 million yuan/393 million yuan, corresponding to EPS of 0.01 million, 369 yuan, and 4.89 yuan respectively.
According to the closing price of 31.72 yuan, the corresponding PE is 2431X, 9X, 6X.
First coverage, giving the company a “recommended” rating.