The company has developed into a leading TPU company. TPU is a polyurethane material with elastic, flexible and stretchy properties. It is widely used in the fields of footwear, adhesives, pipes, films, etc. The compound growth rate of TPU consumption in China from 2017 to 2022 was about +7.0%. The company started with the TPU business and gradually achieved a differentiated product layout in the general TPU and high-end TPU markets after more than ten years of development. TPU prices fluctuated downward from the end of 2021 to 2023, and the price spread is currently relatively low. In the fourth quarter of 2023, the company's production capacity of 100,000 tons of TPU in the Dajijia factory and 8,000 tons of ETPU at the Bajiao plant in Yantai was put into operation. The total production capacity was comparable to Wanhua and Huafeng, reaching 194,500 tons. With differentiated and innovative products, the company's TPU business production and sales are expected to maintain a compound growth of +15-20%.
The Hebi project's first phase of HDI production capacity of 100,000 tons/year was launched at an accelerated pace, and it is expected that it will take the lead later due to the advantage of scale. In March 2022, the company announced the construction of a special isocyanate integration project in Hebi, Henan, with the first phase HDI production capacity of 100,000 tons/year and the second phase of HDI production capacity of 200,000 tons/year. In February 2023, the first phase of the project obtained approval for the 160,000 tons/year gas target and construction permit, and is expected to be completed in the first quarter of 2024. After the completion of the project, the company will have the largest production capacity of a single HDI production line in the world.
HDI consumption is expected to be 25-300,000 tons in 2023. The stock market is mainly water-based paint hardeners, TPU raw materials, and adhesive components. In the future, HDI prices will be rationalized as HDI raw materials are localized and market competition increases, and product application space will expand simultaneously. The incremental space is expected to mainly come from PV backsheet adhesives, wind power coatings, shoe sole solutions, and TPU alternatives. The company's HDI business has production capacity advantages, cost advantages, talent advantages and industrial chain collaboration advantages, which is conducive to improving the overall supply stability of the industry. It is expected that production and sales will rise rapidly after the company is put into operation, and that reasonable profits will be achieved in the oligopoly market, driving rapid growth in performance.
The investment in the world's first CHDI and PPDI industrialization device is expected to be a growth point where performance exceeds expectations.
CHDI and PPDI have good phase separation and higher NCO equivalent, and polyurethane products using them as raw materials have excellent properties. The first phase of the company's Hebi project built the world's first industrial production plant, achieving a CHDI production capacity of 15,000 tons/year and PPDI production capacity of 50,000 tons/year. Currently, CHDI and PPDI lack competition in China. The estimated CHDI price is 5-10 thousand yuan/ton, and the PPDI price is 10-200,000 yuan/ton. The profit per ton is relatively impressive, and it is expected to become a growth point for performance exceeding expectations.
Investment advice: The company has become a small giant in the polyurethane industry with its special isocyanate and TPU layout, as well as the future development blueprint for the Hebi Phase II project. The estimated net profit for 2023-25 is 0.90/2.50/384 million yuan, -19%/+177%/+54% YoY. Considering the compound growth rate of the company's net profit to mother in the next three years, the company was given 30X PE net profit to mother in 2024, corresponding to a target market value of 7.50 billion yuan, covered for the first time, and given a “buy” rating.
Risk warning: Product demand falls short of expectations; project commissioning progress falls short of expectations.