Main points of investment

The modified plastic is small and beautiful, and the differentiation focuses on the field of power tools. 1) the company focuses on the production of high-end modified plastic products, with a production capacity of about 30,000 tons in 2022, of which modified PA business accounts for more than 50% for a long time. The downstream of the company is mainly used in the field of power tools, accounting for 69% of revenue in 2022.

2) High-end positioning brings high gross profit. After 2018, the company clearly focuses on the high-end market and high-end customer strategy, driving the continuous improvement of profit margins. During the period from 2018 to 2022, Jiangsu Boyun's average gross profit margin / net profit margin was 31% / 19%, far exceeding the level of comparable companies.

The raw material side continues to expand, and the inflection point of the demand side to the library is coming. 1) upstream: PA6/PA66 continues to expand its capacity, which is beneficial to the company's cost reduction and terminal application penetration. Modified PA plastics have excellent properties, but due to the high price of raw materials, they account for only 5% of the modified plastics market in China in 2022. In the future, with the substantial expansion of caprolactam, adipic nitrile and other raw materials, modified PA is expected to usher in the volume. 2) downstream: in the short term, the global power tools industry will experience a stock-accumulating cycle in 2022, the overall downstream demand will be under pressure, and the marginal inventory of the industry will be eliminated after 2023, and downstream shipments are expected to pick up steadily.

In the medium and long term, the global power tools market continues to expand, and under the background of high performance requirements, the permeability of modified plastics continues to increase.

The high-end market is still a blue ocean, and the competitive advantage of the company's differential positioning is outstanding. The main results are as follows: 1) the concentration of domestic modified plastics industry is very low, and the industry shows the characteristics of structural surplus, in which the competition of low-end products is fierce and high-end products are still monopolized by foreign capital. In recent years, with faster response speed and breakthroughs in modification process, domestic enterprises are gradually infiltrating high-end application fields. 2) compared with the industry, the company chooses to strategically focus on the high-end field, and is the only comparable company that focuses on modified PA products and power tools. Although there is a certain gap between the company and the industry leader in volume, it already has a strong competitive advantage in some subdivided areas.

R & D first to achieve high-quality customer binding, the project put into production to double the production capacity. 1) the company's business focuses on overseas markets, with direct and indirect exports accounting for more than 60% in 2022, and downstream is deeply bound to high-quality customers such as Stanley Black, Chuangke Group, Amboft and so on. 2) the company continues to promote the development of high-tech products, the proportion of R & D personnel, per capita salary and per capita profit are ranked first in the industry, and the properties of some materials have reached or even exceeded those of international leading enterprises of modified plastics such as BASF and DuPont. 3) the two major fund-raising and investment projects have been carried out in an orderly manner, of which the modified plastic expansion project has invested 326 million yuan and built 8 new production lines, of which 4 will be put into production at the end of 23 and 4 will be put into production at the end of 24. After full production, the company's production capacity will increase from 30,000 tons to 90,000 tons. The R & D center project invests 151 million yuan, which is expected to further the company's R & D capability of modified plastics and increase the company's high-end market penetration.

Profit forecast and investment rating: we expect the company's homing net profit from 2023 to 2025 to be 1.2 billion RMB 1.8 billion respectively. Based on the closing price on September 1, 2023, the price-to-earnings ratio of the corresponding company is 20.9 + 13.5% respectively. Fund-raising projects gradually put into production, superimposed downstream power tools demand warming, optimistic about the company's future development prospects, for the first time to cover the "buy" rating.

Risk hint: the release of capacity is not as expected, the recovery of demand is not as expected, and the competition for modified plastics is intensified.