A leader in the polyurethane additives industry. The company is currently a manufacturer of polyurethane foam stabilizers with a large production scale and a full range of products in China. The products are mainly used to achieve efficient miscibility between the various raw material components of polyurethane foam plastics, stabilize the foaming reaction process, and ensure the uniformity and fineness of the foam. The company's polyurethane foam stabilizer production capacity is 22,000 tons, and its sales share occupies the top of the market. At the same time, the company has built a new development pattern of “two wings in one” through the Nanjing silicone foam stabilizer project and the Jilin organic amine catalyst project.

Net profit increased year-on-year from January to September 2023, mainly due to increased sales volume and lower raw material prices. 1) In 2020-2022, the company's operating income was 390, 4.95, and 497 million yuan, up 15.05%, 27.06%, and 0.37% year on year. Net profit after deducting non-return was 0.81, 0.62, and 71 million yuan, with year-on-year changes of 39.81%, -23.04%, and 13.35%, and gross margins of 38.27%, 23.90%, and 27.60% respectively. In 2020-2022, the sales volume of hard foam leveling agents increased by 1.86%, and the sales volume of soft-foam leveling agents grew at a compound rate of 17.21%. The decline in net profit in 2021 was mainly due to a sharp rise in raw material prices. 2) In the first three quarters of 2023, the company's operating income was 376 million yuan, up 0.59% year on year; net profit was 0.8 billion yuan, up 47.64% year on year; net profit after deduction of 72 million yuan, up 46.42% year on year; gross profit margin was 38.33%, up 12.98 percentage points year on year. The year-on-year increase in revenue from January to September 2023 was mainly due to the increase in sales of foam leveling agent products. Sales of hard foam and soft foam leveling agents increased 10.65% and 9.13% year on year, respectively. The year-on-year increase in profit from January to September 2023 was mainly due to the decline in raw material prices. The purchase prices of the main raw materials silicone monomers, allyl alcohol polyether, and diol alcohols decreased by 44.62%, 12.58%, and 19.39%, respectively.

The polyurethane foam leveler market is expected to continue to grow. According to the 2023 semi-annual report quoting PuDaily statistics, the global polyurethane market in 2022 has reached 55 billion US dollars. It is expected that during 2023-2028, the market size will continue to grow at an average annual compound growth rate of around 5.8%. In 2022, China's polyurethane production has reached 16 million tons. According to the prospectus, the demand for foam levelers is estimated at 1.5% of polyurethane foam production, and the demand for foam levelers in China in 2022 is 240,000 tons.

Expanding the organic amine catalyst business, the first phase will release 25,000 tons of production capacity. The company is developing a new organic amine catalyst business closely related to the main foaming agent business. It has invested in the construction of a 45,000 tons/year organic amine series product phase I project in Jilin, with a total investment of 489 million yuan. Currently, all of the civil engineering works for the project have been completed, and the October 2023 project has reached the intended state of use. The first phase of the project is expected to achieve 25,000 tons/year organic amine catalyst production capacity after delivery, with an operating income of 75 million yuan and an average annual net profit of 142.1956 million yuan.

Profit forecast. We expect the company's EPS for 2023-2025 to be 0.59, 0.76, and 1.01 yuan, respectively.

Referring to the valuation of comparable companies in the same industry, 18-22 times PE for 24 years was given, and the corresponding reasonable value range was 13.68-16.72 yuan. The first coverage was superior to the market rating.

Risk warning. Prices of raw materials have risen; earnings from new construction projects have fallen short of expectations.