Key points of investment:
Company announcement: In the first half of 2023, the company achieved operating income of 719 million yuan (YoY -9.37%), net profit of 51 million yuan (YoY -7.79%), net profit of 49 million yuan (YoY +9.68%) after deducting non-attributable net profit of 49 million yuan (YoY +9.68%). The performance slightly exceeded expectations. Among them, Q2 achieved operating income of 401 million yuan (YoY -0.23%, QoQ +26.1%), net profit of 28 million yuan (YoY -16.35%, QoQ +16.67%), net profit of 27 million yuan (YoY +0.63%, QoQ +22.73%).
2023Q2 raw material costs remained high and terminal demand was weak, but the company's sales volume continued to increase, and performance improved month-on-month. Demand for 2023Q2 terminals was weak, dragging down the TPU boom, superimposed pure MDI prices remained high, product cost transmission was blocked, and the price spread was pressured month-on-month. According to Baichuan statistics, the average market price of 23Q2 TPU products was 15,610 yuan/ton, down 5.09% from the previous month. In terms of cost, the main raw materials BDO, adipic acid, and pure MDI 23Q2 have average prices of 11109, 9499, and 18901 yuan/ton, which changed from Q1 to -7.44%, -6.5%, and +0.07%, respectively. Costs declined slightly, but not as much as the decline in product prices. The company's Q2 gross margin fell 3.28pct to 14.87% month-on-month. Although product price spreads have narrowed, the company's sales volume has increased and performance has improved month-on-month. According to the company's announcement, the company's current TPU production capacity is about 86,500 tons/year, and is expected to add 100,000 tons/year in 2023, and the volume will double. At the same time, the company continues to release high-end shoe materials and car clothing films, and the proportion of high-end products is rapidly increasing.
The first phase of the project in Henan is progressing smoothly, and the second phase project plan has been implemented, opening up room for the company's long-term growth. According to the company's announcement, in the first half of 2022, the company invested in the first phase of the polyurethane new materials industrial park through its subsidiary Meirui Technology (Henan), and plans to invest 1.5 billion dollars to lay out 120,000 tons/year of special isocyanate projects, including 100,000 tons/year of HDI, 15,000 tons/year of CHDI, and 50,000 tons/year of PPDI. Currently, the project has completed the construction of some units and roads, and is expected to be completed and put into operation in the first half of 2024. Since HDI terminals are used in high-precision fields such as high-speed rail finishes, aircraft coatings, and wind power blade coatings, while maintaining an oligopoly pattern globally, the current market price is 35,000 yuan/ton, and profitability is high. In addition to expanding the capacity of 200,000 tons/year of specialty isocyanates, the second phase of the project plans products such as metaphenylenediamine, resorcinol, and acyl chloride, with a total investment of 5.2 billion yuan and a total revenue of over 20 billion yuan. In addition, the company's Henan base currently has a land plan of 1,000 acres, and there is still room for 1,500 acres of land development in the future. Through the construction of this project, the company's industrial chain will be extended, some core raw materials for special TPU will be self-supplied, production costs will be reduced, and room for growth will be opened up.
Profit forecast and investment rating: Affected by terminal demand, the prices of the company's main products have been lowered, so the company's profit forecast for 2023-2024 was lowered, estimated to achieve net profit of 131 million yuan, 443 million yuan (before adjustment), and a forecast for 2025 was added. The company is expected to achieve net profit of 644 million yuan in 2025, corresponding to PE of 48X, 14X, and 10X. Since the company's performance is expected to improve rapidly after the completion of the company's project in Henan, it is expected that the company's compound profit growth rate from 2023-2025 will reach 122%, corresponding to a PEG valuation of 0.4X in 23. Therefore, the valuation premium brought about by the company's future growth is still not fully reflected, and the “buy” rating is maintained.
Risk warning: The commissioning of new projects falls short of expectations; downstream demand falls short of expectations.