Company announcement: According to the announcement, the company and Hubei Xingfu Electronic Materials Co., Ltd. intend to establish a joint venture of Jiangsu Xinxing Electronic Materials Co., Ltd. to build an electronic grade isopropyl alcohol project in the coastal chemical park of Binhai County, Yancheng City, Jiangsu Province. The registered capital of the joint venture is 70 million yuan, of which Xinhua has pledged 45.5 million yuan, the share ratio is 65%, and Xingfu Electronics has pledged 24.5 million yuan, with a share ratio of 35%. The project plans to invest 190 million yuan to build a 20,000 tons/year electronic grade isopropanol project. In the future, additional projects such as electronic grade isopropyl alcohol will be negotiated and expanded according to market demand and industry trends.
The cooperation extends the layout of electronic grade isopropyl alcohol to enhance the added value of the product. Downstream isopropyl alcohol is mainly used as a solvent in coatings, pesticides and pharmaceutical industries; in the field of chemical intermediates, it is mainly used to produce esters such as isopropylamine and by-product isopropyl ether; in addition, isopropyl alcohol is also used in electronics industry cleaners, automotive antifreeze, disinfectants, washing products and daily chemical products. According to the company's announcement, the company has a production capacity of 60,000 tons of acetone-based isopropyl alcohol and 50,000 tons of propylene method. The main raw material this time is propylene-isopropyl alcohol, which is purified and processed into electron-grade isopropyl alcohol through a joint venture, and then sold by Xingfu Electronics to semiconductor companies.
Currently, there are few domestic manufacturers of electronic grade isopropyl alcohol. Most of them are imported, and the added value is significantly higher than that of industrial grade isopropyl alcohol. In the future, it is expected to increase the company's business profits in the organic solvent sector.
The company's isopropyl alcohol was profitable in 2023, thanks to the advantages of the propylene process. The company has two production processes for isopropyl alcohol. The acetone hydrogenation method is the first in China. The acrylic water method was built using patented technology from the Dalian Chemical Institute of the Chinese Academy of Sciences and continuously improved and upgraded. The two processes enable the company to select cost-effective raw materials from different raw materials for product production, and can always maintain a cost advantage in market competition. According to Steel Union data, the production capacity of acetone isopropyl alcohol and propylene isopropyl alcohol in 2023 was about 800,000 tons, respectively. According to Baichuan data, the average price of acetone and propylene in 2023 was close, about 6,249 yuan/ton and 6,867 yuan/ton, respectively. Therefore, the company benefited from leading propylene production capacity and outstanding cost advantages. It is estimated that the gross margin of the company's industrial isopropyl alcohol will reach about 15%.
Later, fragrance equity production capacity increased tenfold, gradually increasing volume to contribute to the certainty of growth in the main business. Currently, the first phase of the Ningxia project is gradually being put into operation, and production is expected to be completed in 2024. Subsequently, Xinrui Fragrance added 18,000 tons of fragrance production capacity and is expected to start production by the end of '24. The company's fragrance equity production capacity is expected to increase nearly 10 times over the next 3 years. The company actively connects with battery recycling companies and automakers to enter the 100 billion battery recycling market. The company announced earlier that it cooperated with Geely Yaoning on a battery recycling project. Currently, a 10,000 ton battery black material production line for the first phase of the project is being gradually planned. According to the company's previous announcement, after the construction and operation of the first phase of the project is completed, the second phase of the project will add 40,000 tons/year of waste lithium battery recycling, and the third phase will add 50,000 tons/year of waste lithium battery recycling, for a total of 100,000 tons of lithium batteries. With its own extractant advantages, Xinhua has a high lithium recovery rate and low recycling costs. Currently, it is gradually cooperating with automakers and battery recycling companies. The project is the company's first battery resource recycling project, and will gradually enter the 100 billion battery recycling market in the future.
Profit forecast and investment rating: Considering the decline in the company's chemical business profit in 2023, the profit forecast for 2023 was lowered, and the profit forecast for 2024-2025 is expected to be about 2.56 (original forecast of 276 million yuan), 4.22, and 556 million yuan for three years, corresponding to PE about 23, 14, and 11 times, maintaining the “buy” rating.
Risk warning: Fragrance production capacity falls short of expectations; battery recycling project progress falls short of expectations.