We are deeply involved in the fields of carbon black and white carbon black, and are actively promoting the upgrading of product structures. Founded in April 2001, Lianke Technology is a high-tech enterprise whose main business is R&D, production and sales of silicon dioxide and carbon black. It is the fourth batch of specialized and innovative “little giant” enterprises at the national level. The company's main products are carbon black and silicon dioxide. The sales revenue of carbon black and silicon dioxide in 2022 was 1,140 million yuan and 637 million yuan respectively, accounting for 96.82% of the total revenue. The company is actively promoting a product differentiation strategy. The focus of the carbon black product sector is gradually shifting to specialty carbon black fields such as electric carbon black and pigmented carbon black, while the focus of silicon dioxide products is gradually shifting to high value-added fields such as highly dispersible silicon dioxide and silicon dioxide for feed.

The company has obvious customer advantages and rich downstream product models. The company is located in Shandong. As the largest tire production base in China, it provides the company with rich downstream customer resources. The company's main customers for carbon black products include Qingdao Double Star, Huasheng Rubber, Jiangyin Boshijia, Triangle Tire, and Shandong Changfeng. The company's main customers of silicon dioxide include Aeolus Tire, Triangle Tire, Qingdao Double Star, Huasheng Rubber, and Pulin Chengshan, etc., and has also been certified by Xinhecheng, a leading vitamin company. The company is currently the silica manufacturer with the largest production scale and the most complete variety specifications north of the Yangtze River.

The fund-raising project lays out high-voltage conductive carbon black to achieve domestic substitution. Rapid economic development has led to an increase in power generation and the construction of supporting power grids, and demand for cable semiconductor shielding materials has increased accordingly. Relying on technology accumulation and talent reserves in its original medium and low voltage business, the company actively integrates industry, education and research, and strives to localize conductive carbon black for high-voltage cable shielding materials. This project is a key implementation project in Shandong Province in 2023. It is a high-end extension of the original conductive carbon black business for medium and low voltage cable shielding materials. The target customers are basically the same as the company's original group.

Valuation and investment advice. We are optimistic about the trend of the company's fundraising products using conductive carbon black as a domestic replacement for high-voltage cable shielding materials. We expect Lianke Technology's revenue for 2023-2025 to be 20.69/24.99/2,961 billion yuan, a year-on-year increase of 12.75%/20.77%/18.52%, and a year-on-year net profit of 1.28/2.30/341 million yuan, a year-on-year increase of 14.78%/79.48%/48.59%, corresponding to EPS of 0.70/1.25/1.86 yuan, respectively. Combined with the company's closing price on July 10, the corresponding PE was 25/14/9 times, respectively. Covered for the first time, giving it a “buy” rating.

Risk warning: risk of fluctuations in raw material prices, risk of falling gross margin, risk of fund-raising project products not being certified, risk of fund-raising project returns falling short of expectations