Key points of investment

Next Wednesday (December 13), a company listed on the Main Board, “Dinglong Technology”, asks for a quote.

Dinglong Technology (603004): The company's main products are fine chemical product intermediates, including hair dye raw materials, special engineering material monomers, plant protection materials, etc.; the company achieved operating income of 644 million yuan/701 million yuan/831 million yuan in 2020-2022, YOY in that order was 2.09%/8.95%/18.48%, and the compound annual growth rate of 9.63% in three-year operating income; achieving net profit of 83 million yuan/95 million yuan/151 million yuan, YOY in that order of -10.85%/ 14.17%/58.58%, with a compound annual growth rate of 17.30% in net profit for three years. In the latest reporting period, the company's revenue from January to September 2023 was 526 million yuan, down 14.55% from the same period last year; net profit was 121 million yuan, down 27.87% year on year. The company expects net profit attributable to shareholders of the parent company to reach 160 million yuan to 180 million yuan in 2023, a change of 6.20% to 19.47% over the same period last year.

Investment highlights: 1. The company is the world's leading producer of hair dye raw materials, and the cooperative relationship with the world's top three hair dye manufacturers is long-lasting and stable. Judging from the global cosmetics market structure, the hair dye and hair care category accounts for the second largest share after skincare products, and accounts for about 20% of the global cosmetics market all year round. Driven by factors such as the rise of the face value economy, the increase in the number of people with silver hair, and the increasing prevalence of the gray hair crisis caused by pressure, the hair dye industry is growing rapidly, driving the demand for upstream hair dye ingredients to increase accordingly. The company has nearly 30 years of experience in fine chemicals research and development. It is one of the world's leading producers of hair dye raw materials. It has established in-depth cooperative relationships for more than 20 years with L'Oreal, Schwarzkom, and Wella, which account for about half of the world's top three hair dye manufacturers. The supply share of the above major customers is around 30%-50%, and the related product line is rich in reserves and strong market competitiveness. 2. The company is actively expanding into special monomers. Polyimide and PBO fiber monomers have been used in well-known downstream customers. 1) Polyimide is currently the most heat-resistant polymer material that can be applied in practice. The world's main production capacity is currently monopolized by the US, Japan, and South Korea; its production cost is high, and exploration of monomer synthesis and polymerization methods is the main direction for future cost reduction.

The company has cooperated with Mitsui Chemicals, a major global manufacturer of polyimides for more than 20 years, mainly supplying biphenylenediamine monomers to them. The future may be expected to benefit from increased demand for polyimide films brought about by the rapid growth in the electronic display, flexible printed circuit (FPC), and thermally conductive graphite film markets. 2) PBO fiber is currently recognized as the fiber material with the best comprehensive properties. It has excellent performance in terms of tensile strength, modulus and heat resistance, and can be used in aerospace, national defense and military industry, bridges and tunnels, fire fighting equipment, competitive sports equipment, etc. With the smooth commissioning of the 380-ton high-performance PBO unit in Chengdu Xinchen in 2019, China has thus become the second country in the world after Japan that can mass-produce high-performance PBO fibers. The company's PBO monomer customers cover Chengdu Xinchen, and it is one of the few domestic manufacturers with the ability to independently produce PBO monomers.

Comparison of listed companies in the same industry: According to the similarity of main products and revenue structures, Cosmos, Xinhan New Materials, Guansen Technology, and Lianhua Technology were selected as comparable listed companies for Dinglong Technology. Judging from the comparable companies mentioned above, the comparable PE-TTM (Arithmetic Average/Excluding New Three Boards) is 21.91X, but considering the differences with comparable companies' products, we tend to think that the valuation reference is limited. The average revenue scale of comparable companies was 2,580 billion yuan, and gross sales margin was 30.77%; in comparison, the company's revenue scale was less than the average of comparable companies, and the gross margin level was similar to that of comparable companies.

Risk warning: There is still a possibility that companies that have begun the inquiry process will not be able to go public due to special reasons; company content is mainly based on the content of prospectus and other public information; there is a risk that the selection of listed companies in the same industry is not accurate enough; there may be interpretation deviations in the selection of content data. The specific risks of listed companies are shown in the text.