Incident: The company issued the “Notice on Investing in a New Production Base in Thailand”. It plans to invest in a new production base in Thailand to build a 20,000 tons/year nylon 66 differentiated fiber project in Thailand (Phase I), with a total investment of about 250 million yuan.
Comment:
Actively respond to the country's “Belt and Road” initiative and promote overseas strategic layout: The company plans to invest in a new production base in Thailand to build a 20,000 tons/year nylon 66 differentiated fiber project (phase 1) to form a total construction scale of 7,000 tons/year nylon 66 industrial wire and 3,000 tons/year nylon 66 fine denier wire totaling 10,000 tons/year nylon 66 differentiated fiber. The total investment of the project is about 250 million yuan, and the construction period is 15 months. The project implementation site is located in the “Eastern Economic Corridor” of Thailand. In recent years, many well-known tire companies around the world have invested in setting up automobile tire processing bases in Thailand, and Thailand has become the second largest tire exporter in the world after China. At present, there are 17 tire companies (French Michelin, Bridgestone, Goodyear, Qingdao Senkirin, etc.), with a total production capacity of over 200 million ries/year. The company has invested in a nylon 66 industrial wire project in Thailand, which is close to downstream customers, which is conducive to reducing sales costs and enhancing product profitability. Furthermore, the company can export nylon 66 industrial yarn directly from Thailand to the US, thereby evading high anti-dumping duties. This investment in a new production base in Thailand is an important step for the company to implement its overseas strategic layout. It helps the company develop overseas markets, establish overseas product supply capacity, enhance global sales capacity, and increase radiation penetration in key overseas regions.
Set up a subsidiary of Longan Chemical to build a coke oven gas project to guarantee the supply of raw materials in the company's nylon industry chain: On August 21, 2023, the company announced that it intends to establish a wholly-owned subsidiary, Henan Shenma Longan Chemical Co., Ltd., to build a 40000Nm3/h coke oven gas comprehensive utilization project. The main products are liquid nitrogen, liquefied natural gas (LNG), liquid carbon dioxide, etc. The construction period of the project is 18 months, and the estimated annual sales revenue is 540 million yuan. The company's nylon industry has initially formed a large nylon pattern of collaborative development between nylon 66 and nylon 6. Industrial development is in high demand for raw materials such as liquid ammonia and LNG, and the main basic raw materials required are all outsourced. After completion, the project will reduce the company's coal consumption, supplement natural gas supply, improve the raw material guarantee capacity of the nylon industry chain, reduce production costs, increase the company's product variety, and expand development space.
Profit forecast, valuation and rating: The company's projects under construction are progressing steadily, responding positively to the country's call to promote overseas strategic layout, and there is plenty of room for development. Therefore, we maintain the company's profit forecast for 2023-25. We expect the company's net profit to mother of 1.62/4.57 billion yuan for 2023-2025, which is equivalent to EPS of 0.15/0.44/0.73 yuan, maintaining the “increase” rating.
Risk warning: New capacity investment falls short of expectations; raw material prices fluctuate; downstream demand recovery falls short of expectations.