summary

Kaisheng New Materials announced a bond conversion issue, with a scale of 650 million yuan, with shareholder placement and online subscription. T Day is scheduled for November 29 (Wednesday). According to our new securities pricing model, we believe that its listing position under current affordable prices may be around 124.14 yuan, with a premium rate of about 24.69%.

Underlying stock analysis

Issuer Kaisheng New Materials is the lead in chlorinated sulfoxide. The main products are sulfoxide chloride, aramid polymer monomers (meta/terephthalyl chloride), p-nitrobenzoyl chloride, polyether ketone, chlorine ether, etc. The downstream is mainly in the fields of pesticides, pharmaceuticals, chemical fibers, etc., and is currently preparing to extend the industrial chain downward to lithium difluorosulfonimide (LiFSi) based on sulfoxide chloride to lay out lithium salt production capacity for new energy vehicles. The company has established a characteristic three-dimensional industrial chain structure starting from chlorine and sulfur-based chemical raw materials, gradually extending to the fine chemical intermediate sulfoxide chloride, interpolymeric terephthalyl chloride, p-nitrobenzoyl chloride and other aromatic acyl chloride products of high-performance fiber aramid, and the high-performance polymer polyether ketone (PEKK). By the end of '22, the company had 24,000 tons/year of aramid polymer monomers, 50,000 tons/year of p-nitrobenzoyl chloride, 110,000 tons/year of sulfoxide chloride, 50,000 tons/year of sulfuryl chloride, and 5,000 tons/year of chloroether. Specifically, in the company's main business structure in '22, carboxyl chloride accounted for the highest proportion, reaching 54.26%. The rest include inorganic chemicals (mainly sulfoxide chloride and sulfuryl chloride, accounting for 33.97%), hydroxychlorides (accounting for 8.53%), and the rest of the business accounts for a relatively low share.

The company plans to raise no more than 650 million yuan in this offering. After deducting the issuance fee, it is intended to be used for the following projects: 550 million yuan for a 10,000 tons/year new lithium salt project for lithium batteries; 100 million yuan to supplement working capital. The company expects that after the project is completed and put into operation, it will add 10,000 tons of lithium bisfluorosulfonimide (LiFSi) production capacity per year, lay out the field of lithium salt for new energy vehicles, and complement the company's “one chain, two wings” strategic plan.

In terms of financial data:

The company's growth is fair. The company's compound revenue increased by 11.52% in the past 5 years (2018-2022), and net profit to mother increased 25.20%. The average five-year compound revenue growth rate of companies in the same industry reached 14.7%, and the net profit growth rate reached 16.8%. Overall, the company is growing strongly in the industry.

The company is highly profitable. The average ROA for the past 3 years (2020-2022) was 16.8% compared to 15.2% in 2022. Gross margin fluctuates greatly, with an average gross margin of 41.9% over the past 3 years and 39.4% in 2022. The average 3-year ROA for companies in the same industry was 7.0%, and the 2022 average ROA was 6.2%. The industry's 3-year average gross margin was 24.1%, and the 2022 average gross margin was 22.3%. Taken together, the company ranks high in profitability in the industry. 1-3Q2023 achieved revenue of 730 million yuan (YoY -4.3%), and net profit to mother for the same period was 130 million yuan (YoY -29.2%).

The company's financial risk is moderate. The estimated net debt risk factor is 2.3%. The company's debt burden is medium, with a balance ratio of 16.87% as of the end of 3Q23. Capital liquidity is strong, with a quick ratio of 2.5 and a cash short-term debt ratio of 2.9.

In terms of principal shares, the actual controllers of the company are Zhang Haobo, Zhang Qiyuan, Zhang Songshan, and Zhang Yizhuo (personal nature). As of September 30, 2023, the largest shareholder (Huabang Life & Health Co., Ltd.) held 44.51% of the company's shares. In terms of restricted shares, the ban on 59.79% of restricted shares will be lifted on September 27, 2024 (restricted shares of the original shareholders of the IPO), and the company currently has no share pledge.

The market value of the underlying stock market is moderately large among those converted into bonds, and the flexibility is average. The total market value of the underlying stock was 8.484 billion yuan, which was the largest among those converted into bonds, accounting for 33.39% of the circulation market. The company's current P/E (TTM) is 47.31x, which is at the middle level of its history, and its P/B (MRQ) is 5.69x, which is at a low level in its own history. Underlying institutions have paid little attention. The volatility rate for the past 180 days is 30.77%. According to our model forecast, the annualized volatility over the next 2 months will be about 36.4%, which is moderately flexible.

Terms and pricing

The scale of debt conversion is small, and debt bottom protection is average. The current bond conversion scale is 650 million yuan, with an initial share transfer price of 20.26 yuan. The starting point of the conversion period: June 5, 2024, the latest parity price is about 99.56 yuan, and the term is 6.0 years. The coupon interest rates are: 0.2%, 0.4%, 0.8%, 1.5%, 2.0%, 2.5%, respectively. The maturity redemption price is 115.0 yuan, the corresponding YTM is 3.12%, and the debt base is about 84.08 yuan. The debt base protection is average. The revised terms are 85%, 15/30 (net assets and face value are the base), the forcible redemption clause is 130%, 15/30, and the resale clause is 70%, 30/30.

According to our pricing model, Lanco Bonds, Guangtai Bonds, Tianneng Bonds, Haishun Bonds, and Wingtai Bonds have a large reference value for current bond conversions. We expect their secondary market pricing to be around 124.14 yuan, with a premium rate of about 24.69%. We think that when the listing price is above 127.87 yuan, it can be considered overvalued, and when it is above 130.35 yuan, it is significantly overestimated. When the listing price is below $120.42, it can be considered undervalued, and when it is below $117.93, it is significantly undervalued.

risks

Prices of raw materials fluctuated; consumption of new production capacity fell short of expectations; downstream demand weakened.