Summary of the report:

The company is a private enterprise with the comprehensive development of silicon dioxide and carbon black, which is located in Weifang, Shandong Province, close to the tire production base in China. After more than 20 years of development, the company has established the basic disk of carbon black and silica for rubber addition while differentiating the development of conductive carbon black for cable shielding materials.

The company is expected to take the lead in realizing the localization of conductive carbon black for high voltage cable shielding materials. The cable shield plays an important role in the long-term stable and safe operation of the cable, but the conductive carbon black used in high voltage cable shielding materials has always been dependent on imports because of the high purity requirements, and benefiting from the new UHV infrastructure and the development of offshore wind power, there will be a large domestic alternative space in the future. we estimate that the conductive carbon black market space for high voltage / medium and low voltage cable shielding in 2025 will be about 27pm 113,000 tons. In order to solve the neck problem of the key material of high voltage cable, led by Southern Power Grid, including cable, shielding material, conductive carbon black and other core enterprises in the industrial chain, the "High Voltage Cable shielding material Research and Development working Group" was formed. UNOCI technology is involved as the only carbon black production enterprise. At present, the company has completed research and development, and completed the fixed increase in the near future, raising funds to build conductive carbon black with an annual output of 100000 tons of high voltage cable shielding materials, and is expected to achieve commercial supply in the middle of 2024 according to the construction schedule, so as to break the pattern of external dependence.

The difference rate of high added value of silicon dioxide is further improved. Benefiting from the improvement of the penetration rate of green tires and the development of electric vehicles, we estimate that the global market space for highly dispersed silica is expected to reach 2.67 million tons by 2025, with a compound growth rate of 11.6% in the next three years. In addition, the market for lead-acid battery PE separators and silica for toothpaste has a steady growth rate. The company continues to increase the proportion of highly dispersed silicon dioxide, and all the 100000 tons of highly dispersed silicon dioxide projects raised by the company's IPO at the end of 2023 will reach production, with an annual production capacity of 200000 tons of silicon dioxide, the proportion of highly dispersed silicon dioxide capacity will be increased to 70%, and profitability will be further improved.

Profit forecast and valuation: we expect the company to achieve revenue of 1.93 25X/16X/10X 24.05 / 3.065 billion yuan in 2023 to 2025, net profit of 1.25 million for yoy+5%/25%/27%, 3.32 million yuan for yoy+13%/63%/62%, and 44% for yoy+13%/63%/62%, in three years. The current share price PE is 25X/16X/10X. Considering the high growth of the company's performance in the next three years, the core driving force of the performance growth is to take the lead in breaking through the overseas monopoly of conductive carbon black for high voltage cable shielding materials, and the company's market capitalization is relatively small, so we think that an appropriate valuation premium should be given. the valuation of Lingwei Technology, which is relatively small and overvalued in the comparable company, will be valued at 22 times according to the 2024 performance, corresponding to a market value of 4.5 billion yuan and a target price of 22.22 yuan, covering for the first time. Give a "buy" rating.

Risk tips: the risk that the fixed increase project is less than expected, the risk of significant fluctuations in the price of feedstock oil, and the risk that performance and valuation are less than expected.