Srbon's BackshellDanhua TechnologyLog in to the capital market

Silbang will use Danhua Technology to enter the capital market. Former Danhua Technology's main business, such as coal-to-ethylene glycol, will continue to be retained. The restructuring of Houdan Chemical Technology will include highly profitable chemical assets. The company's main business will add R&D, production and sales of high-value-added olefin derivatives. The main product range will further cover a series of diverse petrochemicals and fine chemicals such as acrylonitrile, MMA, EVA, EO and their derivatives. Profitability has been greatly improved, making Danhua Technology an enterprise with strong market competitiveness. The restructuring plan is for Danhua Technology to issue shares to all shareholders to purchase 100% of Sirbon's shares. Sirbon's valuation is 11 billion yuan, the stock issuance price is 3.66 yuan/share, and the total number of shares issued is about 3.05 billion. Sirbon promised that the total net profit after deduction from 2019 to 2021 will not be less than 2.85 billion yuan, based on the average promised performance of 950 million yuan/year in 2019-2021. The purchase consideration PE is 11.6 times and PB is 1.57 times.

Sierbon's industrial chain integration positions high-end

Sirbon mainly uses methanol as the core raw material, relies on the MTO main device to produce olefin products such as ethylene and acrylic, and then uses olefin as intermediate products to finally produce high value-added products such as acrylonitrile, MMA, EVA, and EO and their downstream derivatives. We believe that Sierbon MTO is the largest single unit in the country, and has a competitive advantage in terms of technology and scale. Downstream MTO has avoided traditional products such as polyethylene and polypropylene, and its main products such as acrylonitrile, MMA, and EVA are in the first tier in the country, achieving product differentiation, strong competitiveness, and industrial chain design with its own characteristics. Major products such as acrylonitrile and EVA target the downstream high-end market, and it is expected that good profits can be achieved by differentiating high-quality products.

Upstream and downstream expansion to further improve the industrial chain

Silbon's business is developed with methanol as the core raw material, and Danhua Technology has resource and location advantages in developing new coal chemical projects such as coal-to-methanol, and the two sides are expected to achieve industrial collaboration. Sirbon is expected to improve the weak link in the upstream methanol supply chain, achieve the layout of the entire chemical industry chain, obtain added value from the integrated industrial chain to a greater extent, and enhance its voice within the olefin derivatives industry. Furthermore, we believe that Sirbon is also expected to continue to expand into the field of new materials with higher downstream added value along the existing olefin industry chain, further enhance the overall profitability of the industrial chain while digesting its own upstream production capacity, and achieve growth and strength.

Profit forecast and investment suggestions: If the impact of the acquisition of Sirbon is not taken into account, we expect the company's net profit to be -0.6/-0.1/0.1 billion yuan in 2019-2021; if the acquisition is successfully completed, we expect the company's net profit to be 8.4/9.4/1.06 billion yuan in 2019-2021. The PE corresponding to the current price is 21/19/17 times, covering the first time, giving the company an “increase in holdings”

Risk warning: Risk of failure in the injection of assets by Sirbon, risk of performance falling short of expectations, risk of overpricing by Sirbon, risk of impairment of goodwill after restructuring, and risk of a sharp drop in prices for products such as acrylonitrile and EVA.