A leading company in the polyurethane additives industry. The company is currently a large-scale domestic manufacturer of polyurethane foam stabilizers with a full range of products. The products are mainly used to achieve efficient mutual dissolution between the various raw material components of polyurethane foam, stabilize the foaming reaction process, and ensure the uniformity and fineness of the foam. The company has a polyurethane foam stabilizer production capacity of 22,000 tons, and its sales share is at the top of the market. At the same time, the company has built a new “two wings in one” development pattern through the Nanjing silicone foam leveling agent 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 revenue was 3.90, 4.95, and 497 million yuan, up 15.05%, 27.06%, and 0.37% year-on-year. Net profit after deducting non-return to mother was 0.81, 0.62, and 171 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, sales of hard foam leveling agents grew at a compound rate of 1.86%, and sales 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) The company's revenue for the first three quarters of 2023 was 376 million yuan, up 0.59% year on year; net profit to mother was 80 million yuan, up 47.64% year on year; after deducting non-net profit 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 increased sales of foam leveling agent products. Sales of hard foam and soft foam leveling agents increased by 10.65% and 9.13%, respectively. The year-on-year increase in profit from January to September 2023 was mainly due to a decrease in raw material prices. The procurement prices of the main raw materials silicone monomer, allyl alcohol polyether, and dialcohol decreased by 44.62%, 12.58%, and 19.39%, respectively.
The polyurethane foam leveling agent market is expected to continue growing. According to the 2023 semi-annual report, citing PUDaily statistics, the global polyurethane market reached 55 billion US dollars in 2022, and it is expected that the market size will continue to grow at a compound annual growth rate of about 5.8% during the 2023-2028 period. In 2022, China's polyurethane production reached 16 million tons. According to the prospectus, the demand for foaming agents is estimated at 1.5% of polyurethane foam production, and China's demand for evaporation agents in 2022 is 240,000 tons.
Expand the organic amine catalyst business, and 25,000 tons of production capacity will be released in the first phase. The company is developing a new organic amine catalyst business closely related to the main foaming agent business. It is investing in the first phase of the 45,000 tons/year organic amine series product project in Jilin, with a total investment of 489 million yuan. Currently, all civil engineering projects for the project have been completed, and the project reached the scheduled state of use in October 2023. The company expects the first phase of the project to achieve an organic amine catalyst production capacity of 25,000 tons/year, operating income of 750 million yuan, and an average annual net profit of 142.1956 million yuan.
Profit forecast. We expect the company's 2023-2025 EPS to be 0.59, 0.76, and 1.01 yuan respectively. Referring to the valuation of comparable companies in the same industry, PE was given 22 times in 24 years, corresponding to a target price of 16.72 yuan. The first coverage was given an superior rating over the market.
Risk warning. Prices of raw materials have risen; earnings from new construction projects have fallen short of expectations.