中信证券 ·  08/03

Miracll Chemicals, as the leader in thermoplastic polyurethane (TPU) industry, provides tailor-made services for high-end products and boasts high profit margins. In 2022, it started building a presence in isocyanate hexamethylene diisocyanate (HDI) and other upstream high-end products, realizing the import substitution of key raw materials in the polyurethane industry, driving significant earnings growth. Considering that the Company is in the fast growth stage, we assign 15x 2024E PE, equivalent to a target price of Rmb25. We initiate coverage with a "BUY" rating.

The TPU leader with high-end product positioning and differentiated competitive advantages.

Miracll Chemicals is a professional supplier of customized new materials for the domestic high-end TPU industry, mainly producing TPU and positioning at high-end products with low costs and differentiation. The founder team with Chairman WANG Renhong as the core has many years of technology and product experience in the isocyanate industry, which is a strong support for the Company's competitiveness. In 2022, the Company raised funds of no more than Rmb235mn from the actual controllers, empowering the long-term development.

Building presence in the upstream high-end HDI products, and creating a second growth curve by import substitution.

With its superior performance and environmental protection advantages, HDI is hailed as the "pearl on the crown" in the polyurethane industry. It finds extensive downstream applications, primarily in high-end coatings. HDI production involves complex processes, especially the use of highly toxic phosgene, leading to high barriers to entry. Only Covestro, Corksribas, Tosho, Asahi Kasei, Wanhua Chemical have such production capability across the world. The Company's phase 1 project with an annual production capacity of 100kt is likely to be put into production in early 2024, aiming to achieve import substitution and achieve self-sufficiency in critical areas. With the accelerated localization of hexamethylenediamine (HMDA) and adiponitrile (ADN), the Company shows significant cost advantages, which will likely contribute to substantial growth in earnings.

TPU business is making strides in the high-end market, with both volume and price increases supporting its growth.

TPU combines the high elasticity of rubber and the high strength of plastics, featuring various advantages such as easy processing, transparency, and aging resistance. Its downstream applications include shoe materials, phone cases, wearable devices, aerospace, medical tubing, etc. According to data from Askci, the compound annual growth rate (CAGR) of TPU demand from 2017 to 2021 reached 10.42%, while the mid-to-high-end market still relies on imports. We conservatively estimate that the TPU market demand growth rate from 2023 to 2025 will be 7%, with high-end demand growing at over 10%.

The Company positions itself with high-end products and possesses strong competitiveness.

High growth, high earnings elasticity and attractive valuation.

At present, the total production capacity of the Company's TPU is 86.5kt, and the planned new production capacity of 200kt is likely to be released according to demand. We expect the gross profit margin (GPM) of TPU business to remain stable, and the net profit to increase slightly with the growing volume. The projected net profit will be Rmb144mn in 2023.

According to the Company's announcement, the newly added HDI production capacity will likely be put into operation and contribute 20kt of output. Under the neutral assumption of prices, the net profit contribution will be Rmb288mn, indicating a performance increment elasticity of 154%.

Potential risks: Slower-than-expected new project construction progress; intensified competition; slowdown of macroeconomic growth, insufficient demand and decline GPM; fluctuating prices of major raw materials; declined inventory prices; Changes in the political and economic environment, as well as trade policies, in the countries or regions where overseas customers are located.

Investment strategy: Miracll Chemicals is a rare domestic company with TPU as its main business, and HDI endows it with significant growth potential. We forecast the Company's 2023E/24E/25E operating revenue to be Rmb1.535bn/3.039bn/ 4.949bn, respectively and corresponding attributable net profit (ANP) to be Rmb144mn/475mn/887mn, implying EPS forecasts of Rmb0.48/1.58/2.96, respectively. We choose Wanhua Chemical (600309.SH), a company engages with HDI and TPU business, and downstream players Kangda New Materials (002669.SZ) and Huitian New Materials (300041.SZ) as comparable companies. Based on the average PE level of 16.3x 2023E/12.2x 2024E, and the average PEG level 0.3x in 2023 for comparable companies, and considering that the Company's new HDI business has strong growth, we forecast that the annual net profit growth rate of the Company from 2024 to 2026 will be 270%. Given that the Company's 2024 earnings growth forecast is 6.9x that of the comparable companies based on the Wind consensus estimates, we apply a conservative principle and grant the Company a valuation premium of 23%. We assign 15x 2024E PE to derive a target price of Rmb25 and initiate coverage with a "BUY" rating.

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