1. Medical and non-container food packaging base paper leader, sub-sector share in the forefront of the industry, profitability leading industry.

Hengda New Materials is a domestic leader in the field of medium-and high-end medical and food packaging base paper, including medical packaging base paper, non-container food packaging base paper, industrial special paper base paper and cigarette matching base paper. it mainly serves the medical and health industry, food consumption and other industries.

As of March 2023, the company's raw paper production capacity totaled 106000 tons. Split 2022:

1) the company's sales of medical packaging base paper is 63000 tons, and the market share of domestic medical packaging base paper and medical dialysis paper is 16.8% and 22.2% respectively (2021). In 2022, the sales of medical packaging base paper increased by 54.6% over the previous year, and the market share further increased. 2) the company sells 32000 tons of food packaging base paper, with a market share of 12.7% in the domestic non-container food packaging base paper market (2021). Based on the company's leading position in the field of middle and high-end medical and food packaging base paper, the company's profitability is in the forefront of the industry. In 20-22, the average gross profit margin of the company's specialty paper business was 23.80%, and the average net profit rate was 12.42%. It is 5.0 and 4.1 percentage points higher than the average of comparable companies in the same industry respectively.

2. The barriers of medical and food specialty paper industry are relatively high. Besides emphasizing the safety and health of production materials and environmental protection and health, the medical and food packaging paper of the company's customers have special requirements for air permeability, bacterial resistance, waterproof and oil-proof properties, biocompatibility and other properties. The industry has higher barriers, including quality barriers and customer barriers.

1) quality barriers: compared with the ordinary paper industry, the process accuracy of special paper packaging base paper such as medical and food is higher. Many factors in the production process, such as wood pulp concentration, fiber distribution, working speed, working pressure, working temperature, moisture control and so on, will have a significant impact on product quality, and product quality control is particularly important. 2) customer barriers: in the field of medical and food specialty paper, end customers have high requirements for product quality, large customers are generally cautious in the introduction of new suppliers, and the certification cycle is generally long.

The company's medical packaging base paper is mainly supplied to domestic well-known medical supplies and equipment manufacturers, including Ogilvy Medical, Zhende Medical, healthy Medical and Weihaiwei High. Food packaging base paper terminals are mainly used in KFC, Dexter, Burger King, Subway and other well-known fast food chain enterprises. The company has cooperated with major customers for more than 5 years, and the customers are of high quality and stable.

3. Under the catalysis of policy, there is a wide space for wrapping paper such as medical treatment and food.

According to the China Paper Yearbook, the output of special paper in China increased from 2.98 million tons to 7.18 million tons from 2011 to 2020, with an annual compound growth rate of 10.26%. Among the subdivided varieties, 1) medical packaging base paper: the output of medical packaging base paper in China was 235000 tons in 2021, and the CAGR in 13-21 was 11.61%. The growth rate further accelerated in recent years, and the CAGR in 18-21 was 19.33%. The two national standards for medical devices implemented in November 2020 and April 2021 require that when infusion or syringes are sterilized with ethylene oxide, at least one of the initial packaging should be a material package with breathable function (such as dialysis paper). Benefiting from the upgrade of medical packaging under the policy-driven final sterilization mode, the medical packaging paper represented by medical dialysis paper has a broad prospect. 2) Food packaging base paper: the market size of special paper for food packaging in China is about 2.67 million tons in 2021, and the CAGR in 11-21 is 9.54%. The growth rate has further accelerated in recent years, and the CAGR in 18-21 is 18.32%. In January 2020, the National Development and Reform Commission and the Ministry of Ecological Environment put forward phased plastic restriction targets and measures in 2020, 2022 and 2025, benefiting from the strengthening of the "plastic restriction order" policy, accelerated trend of plastic reduction and replacement, and broad space for the development of food paper.

4. fund-raising projects and subsequent production expansion to break the capacity bottleneck and support the growth of the company.

In 2022, the company's actual production capacity is 97000 tons (the production line capacity of the new production line in 2022 is converted on a monthly basis), the capacity utilization rate is 99.9%, and the capacity bottleneck is highlighted. The company's IPO investment project "Hengchuan New material Line 3 Project" was completed in April 2022, with an additional production capacity of 30,000 tons. In addition, "Hengchuan New material annual production line of 50,000 tons of new packaging paper and 10,000 tons of food medical paper products deep processing project" has started construction in October 22. According to the company's website, it is expected to be put into production in the fourth quarter of 23, and the production capacity will increase to 160000 tons. Through independent production expansion and mergers and acquisitions, the company plans to increase its annual production capacity to about 180,000 or 250,000 tons per year. With the planned production capacity gradually falling to the ground, the company will break the existing capacity bottleneck and better meet the needs of downstream customers.

5. Profit forecast and valuation

We expect the company to achieve revenue of 9.00,12.87 and 1.624 billion yuan respectively from 2023 to 2025, an increase of-5.6%, 43.0% and 26.1% respectively over the same period last year, and its net profit is 1.00,1.44 and 182 million yuan respectively, up 2.6%, 43.8% and 26.4% respectively over the same period last year. Combined with the relative PE valuation method and the absolute valuation method, we believe that the reasonable market capitalization range of the company in the 6-12 months after listing is 26.92-3.192 billion yuan. Based on the total share capital of 89.48 million shares after IPO, the estimated price per share is 30.09-35.67 yuan, and the PE range corresponding to the net profit deducted before and after deducting non-return profits in 2022 is 27.6-32.8,31.5-37.4 times respectively. The PE range corresponding to the estimated return net profit in 2023 is 26.9-31.9 times, and the PE range corresponding to the estimated return net profit in 2024 is 18.7-22.2 times.

6. Risk hint

The market competition aggravates the risk, the raw material price fluctuation risk, the profit forecast hypothesis does not establish the risk, the energy price rise risk, the exchange rate fluctuation risk and so on.

Investors should make their own investment decisions and bear their own investment risks.