A manufacturer of fine chemicals, aromatic ketones. The company produces various aromatic ketone products based on the Fouk reaction, including core raw materials for special engineering plastics, photoinitiators, cosmetic raw materials, pharmaceutical pesticide intermediates, etc., with a production capacity of 4,200 tons as of 2022. Downstream applications are mainly aerospace, coatings, inks, cosmetics, and medical, food and beverage fields. In 2020-2022, the company's operating income was 2.88, 342 million yuan, and 398 million yuan, up -1.33%, 18.80%, and 16.39% year on year. Net profit after non-attribution was 0.67, 0.61, and 91 million yuan respectively, up -5.60%, -9.43%, and 50.84% year on year. Gross margin was 41.49%, 32.01%, and 36.11%, respectively. In 2021, gross margin declined due to the lack of timely transmission of raw material price increases. In the first half of '23, the company achieved revenue of 230 million yuan, an increase of 25.56% over the previous year, after deducting net profit of 46.75 million yuan, an increase of 8% over the previous year. Among them, DFBP sales increased significantly.

The PEEK market is growing rapidly. In 2022, the company's special engineering plastics raw materials accounted for 50.95% of revenue.

The DFBP produced by the company is mainly used as a monomer for the special engineering plastic PEEK (polyether ether ketone), which is used in aerospace and automobile manufacturing, IT manufacturing, medical devices and industrial fields. According to the company's 2022 annual report, which cites statistics from the Forward-looking Industry Research Institute, the global PEEK materials market was 560 million US dollars in 2013, and grew to 831 million US dollars in 2018, with a compound growth rate of 8.21%. The company's customers include VICTREX (Victrex), SOLVAY (Solvay), EVONIK (Evonik) and China Research Co., Ltd. The company's main competitors are Yingkou Xingfu (with an annual design capacity of 2000 tons) and Zhongxin Fluorocarbon (with an annual design capacity of 5,000 tons).

Build new production capacity to help grow. In 2021, the company's IPO raised 620 million yuan to invest in the construction of “8000 tons of aromatic ketones and supporting projects with an annual output of 8000 tons”. Among them, the core raw materials for special engineering plastics are 3,400 tons/year (DFBP design production capacity is 2,500 tons/year), photoinitiators are 500 tons/year, cosmetic raw materials 2,950 tons/year, and other (pharmaceutical or pesticide intermediates) products are 1150 tons/year. DFBP samples from the second workshop of the production line related to the fund-raising project are being verified by relevant customers. Some customers have already passed the verification and mass production and supply have begun; HAP customers in the first workshop have passed the verification and supply has begun.

Implement an equity incentive plan. In 2022, the company granted 1.6 million restricted shares to directors, senior management, middle management, and core technology (business) executives. The assessment year is 2023-2025, for company-level performance (revenue of 2023 is not less than 220 million yuan, cumulative revenue for 2023-2024 is not less than 1.110 million yuan and revenue for 24 years increased by no less than 20% year-on-year, cumulative revenue for the three years 2023-2025 is not less than 1.81 billion yuan, and revenue for 2025 is not less than 20% year-on-year increase).

Profit forecasting. We expect the company's EPS to be 0.96/1.27/1.52 yuan/share in 23-25. Referring to comparable companies in the same industry, we give it 25-30 times PE in 2023, a reasonable value range of 24-28.8 yuan, and a superior market rating for initial coverage.

Risk warning. Product prices fluctuated; new projects fell short of expectations.