The company is a pioneer in the nylon industry, has experienced more than 40 years of industry ploughing, and has established a complete integrated industrial chain of nylon 6 chip polymerization, nylon 6 spinning, knitting and printing and dyeing. In 2022, the company produced 169,000 tons of nylon chips / filament picks, with a market share of 3.8% and 1.7% respectively according to output. However, affected by the fluctuation of the industry cycle, the profit level of the company has fluctuated continuously in recent years. At present, the nylon industry has gradually entered a mature period from the period of rapid development before 2015, and the head pattern is gradually stable. we judge that the clearance of small and medium-sized enterprises and the technological upgrading of head enterprises in the future will further enhance the concentration of the industry. According to the second revision of the fixed increase plan announced on July 30, 2023, the company plans to issue no more than 30% shares to Liheng Investment at a consideration of 594 million yuan, and Liheng Investment will hold 23.36% of the shares after the completion of the program. combined with the improvement of voting rights to achieve control and actual controller change, Hengshen Group is expected to become the master company, while the relevant peer assets of Hengshen Group are expected to be injected into the listed company. We judge that the future nylon industry integration will be further accelerated, the company as the industry leader, combined with Hengshen Group is expected to usher in new development. Considering that there is some uncertainty in the implementation of the company's fixed increase plan, it is suggested that we should pay continuous attention to it.

Company profile: focus on nylon chips + spinning integration of the first-mover enterprises. Founded in 1970, Meida shares has experienced more than 40 years of industry ploughing, and has established a complete integrated industrial chain of nylon 6 chip polymerization, nylon 6 spinning, knitting and printing and dyeing. In 2022, the company achieved an income of 2.9 billion yuan, with a net profit loss of 55 million yuan due to periodic fluctuations. In 2022, the company produced 169000 tons of nylon chips and sold 105000 tons to the outside world, with a corresponding income of 1.42 billion yuan, accounting for 49% of the income, and a market share of 3.8% calculated by output. The annual output of nylon filament is 71000 tons, the external sales is 65000 tons, and the corresponding income is 1.32 billion yuan. The income accounts for 45%, and the market share is 1.7% according to output. The company is in an industry with strong periodicity, and its profits have fluctuated greatly in recent years. The gross profit margin in the upstream / downside phase of the cycle has reached 10% and 5% respectively, while the net interest rate has fluctuated more significantly.

Industry: the nylon industry has entered a mature period, and the head pattern is gradually stable. We estimate that the market size related to caprolactam-nylon chips-nylon fiber in China will reach 195.4 billion yuan in 2022, with a compound growth rate of 5.4% in the past five years.

At the same time, according to the forecast of Mordor Intelligence, the industry is expected to maintain a compound growth rate of 4.5% in the next five years, and the market size will reach 243 billion yuan in 2027. From the perspective of the industrial chain, the market scale of caprolactam / nylon chips / nylon fiber reached 585 billion 647 billion yuan respectively. Reviewing the gradual localization and landing process of caprolactam-nylon 6 industry chain, the nylon industry has gradually entered a mature period from the period of rapid development before 2015, accompanied by periodic overcapacity in all links. Caprolactam-slicing, slicing-filament profit space continues to narrow. Looking to the future, we judge that there are two trends in the industry: 1) clearance of small and medium-sized enterprises; 2) technological upgrading and product innovation.

Led by integration and self-sufficiency of raw materials, advanced equipment and process improvement and scale effect, and continuous R & D investment, head enterprises continue to optimize their own production costs and product added value.

Future outlook: the company plans to increase and change more control, if Hengshen Group is owned, it will help to enhance the synergy & asset injection expectation. The company has started its plan since 2021. According to the second revised version of the fixed increase plan announced on July 30, 2023, the company intends to issue 158 million additional shares to Liheng Investment at a consideration of 594 million yuan (not more than 30% of the total share capital before this issue). The issue price is 3.75 yuan per share. Once the plan is completed, Liheng Investment will hold 23.36% of the shares, and the increase in the proportion of voting rights will realize the change of control and the actual controller. At the same time, Chen Jianlong and his concerted actors promised to increase their holdings of Meida shares to consolidate control over listed companies. According to the 2022 Summit of China's Top 500 Private Enterprises, Hengshen Group's revenue reached 65.927 billion yuan.

Over the years, Hengshen Group has ploughed the whole nylon industry chain to build an integrated industry chain of cyclohexanone-caprolactam-nylon chips / spinning / fabric. Once the listed company completes the change of control, on the one hand, it is expected that Meida shares will enhance its synergy with Hengshen Group by virtue of the supply of caprolactam; on the other hand, considering the issue of inter-industry competition among real controllers, the assets of the relevant peer enterprises of Hengshen Group are also expected to be injected into the listed companies in the future.

Risk factors: downstream demand is falling faster than expected; industry competition intensifies; the progress of industry integration is lower than expected; the fluctuation of raw material costs is higher than expected; the company's new product development is lower than expected; there is uncertainty about the progress of private placement; the risk of equity freeze of existing controlling shareholders.

Profit forecast, valuation and rating: the company is a pioneer in the nylon industry, with more than 40 years of experience in the industry, establishing a complete integrated industrial chain of nylon 6 chip polymerization, nylon 6 spinning, knitting and printing and dyeing. Taking into account industry fluctuations, we expect the company's 2023-2025 return net profit to be-24-11-34 million yuan, a year-on-year growth rate of 206.5%. According to the fixed increase plan recently released by the company, the company is expected to achieve a change of control, while Hengshen Group is expected to enhance synergy once it is owned, and consider the issue of inter-industry competition among real controllers. in the future, the relevant interbank assets of Hengshen Group are expected to be injected into listed companies. Considering that the company's profit level fluctuates greatly in recent years, there is some uncertainty in the future cash flow situation, and there is some uncertainty in the implementation of the company's fixed growth plan, so it is suggested that we should continue to pay attention to it.