Introduction: The company's incremental COC business has taken the lead in localization. Profit in the stock polyether amine and (methyl) isoboryl acrylate business is growing steadily, and is expected to usher in a revaluation.
1. The company continues to invest and actively promote COC research and development, and is expected to usher in a breakthrough in mass production during the year. COC/COP is a 10-billion-level market with global demand of 82,900 tons and a CAGR of 7.28%. Demand prospects are broad. We believe that the company began to insist on 9 years of R&D investment in 2014, the COC went from a small trial to R&D expansion in 2020, and completed laboratory-level synthesis and verification of the kiloton production line of raw materials and COC in 2021. All indicators have met expectations, and positive progress has been made. The company's COC project is expected to achieve mass production in kilotons within the year, and expand first-mover advantage by expanding production by 10,000 tons/year in Qianjiang, further realizing the company's R&D competitiveness and ushered in a value revaluation.
2. The COC supply pattern is good, technical barriers are high, and the localization of the industry has policy support. The total COC/COP production capacity is 82,400 tons, of which Japan's Baoli (30,000 tons) and Japan's Mitsui Chemicals (90,000 tons) are COC, Japan's synthetic rubber (50,000 tons), and Japan's Leon (42,000 tons) are COP. Due to the pattern of high supply oligopoly, there is currently a tight balance between supply and demand, and existing suppliers have no incentive to drastically expand production to cover new demand under high profit conditions, so the expansion of production is relatively restrained. The COC's three technical barriers make localization difficult:
1. Synthesis of monomer pyrolene 2, metallocene catalyst selection and preparation 3. Polymerization quality control. Due to its strong demand and “stuck neck” characteristics, the Ministry of Industry and Information Technology has introduced relevant policies to lead COC localization. Cycloolefin polymers (COC) are listed as encouraged advanced chemical materials in the Ministry of Industry and Information Technology's “Demonstration Guiding Catalogue for the First Batch Application of Key New Materials (2021 Edition)” implemented on January 1, 2022. We believe that under policy attention and guidance, the company is expected to enjoy the dividends of pioneering localization.
3. The backlog of wind power orders in 2023 is expected to be delivered one after another, and polyetheramine profits will experience a marginal improvement. In 2022, China's wind power tender volume was 109.3 GW, while the new installed capacity was only 37.63 GW, accumulating a large number of uninstalled orders. In Q23, China's new installed capacity of wind power/ wind power tender volume was 10.4 GW/19.86 GW, respectively. The total number of uninstalled orders from '22 to 23 Q1 was 81.13 GW and continued to increase. In 2023, China's wind power may usher in centralized delivery, demand for polyetheramine will boost, and profit per ton is expected to improve marginally. The company also plans to expand the Qianjiang polyetheramine production capacity by another 20,000 tons/year, increase shipments of shale inhibitors and the wind power industry through reasonable production expansion, give full play to channel advantages; increase sales volume in small categories to strengthen the company's technical and scale advantages, and stock business profits are expected to reach a new level.
Investment advice: We are optimistic that the company's polyetheramine profit will improve marginally per ton due to the recovery in wind power demand, while COC relies on technology accumulation to achieve mass production, fully benefiting from the breakthrough in localization in the 10 billion dollar market. Net profit for 2023-2025 is expected to be 0.52/1.64/225 million yuan, and the corresponding PE is 78.48/24.87/18.15X, respectively, and upgraded to a “highly recommended” rating.
Risk warning: There is a risk that production capacity will fall short of expectations, the risk of a sharp drop in prices, and the risk of a sharp decline in demand.