Key points of investment:
The company formulated a “one chain, two wings” strategy to expand into new energy materials based on sulfoxide chloride. Shandong Kaisheng was established in 2005, listed on the New Third Board in 2016, and listed on the GEM in 2021. Based on sulfoxide chloride products, the company has expanded various new material products downstream, such as aramid polymer monomers, LiFSi, and PEKK. The company's downstream involves various industries such as consumption, agrochemicals, lithium batteries, aramid, and high-end engineering plastics.
The company has the world's largest sulfoxide production base, with a production capacity of 150,000 tons/year, and sales volume of 101,000 tons in 2022, which is the lowest cost in the world. Supply in the sulfoxide industry exceeds demand. On the demand side, downstream are the four major application areas of lithium electrolytes LiFSi, sucralose, pharmaceutical and pesticide intermediates, and dyes. Downstream demand in 2022 is 385,000 tons, which is expected to have a compound demand growth rate of 19.6% in 2022; on the supply side, the total domestic production capacity in 2023 is 565,000 tons, and there will be almost no new production capacity in the future due to environmental restrictions. We believe that in the future, the rapid growth rate of LifSi and sucralose will drive demand for sulfoxide chloride to grow. Currently, product prices are at historically low levels. In addition, the company plans to produce 10,000 tons of LiFSI per year, and the net profit of the project is expected to reach 430 million yuan at full load.
Aramid polymer monomers support the company's important performance. The company's integrated layout has advantages, and demand for downstream aramid is high. The aramid polymer monomer business supports the company's performance. The company already has a production capacity of 31,000 tons and will expand production to 510,000 tons in the future. The business has strong profitability, and the gross margin of aramid monomer reached 44.3% in 2022, supporting the company's important performance. The company's integrated layout produces its own sulfoxide chloride to prepare aramid polymer monomers, which has a cost advantage; it has established long-term and stable cooperative relationships with leading overseas customers such as DuPont of the United States and Kolon of Korea. The downstream of the aramid monomer is aramid fiber, which has high impact resistance, high wear resistance, high chemical resistance, and high thermal degradation resistance, and is the core material for bulletproof vests. Against the backdrop of ongoing global geopolitical conflicts, demand for aramid is expected to grow at a high rate in the future. The China Composite Materials Industry Association expects the compound growth rate of the aramid market to be 9.7% in 2021-2026.
PEKK demand is expected to benefit from the explosion of humanoid robots. The company's technology has reached the international advanced level, and the cost advantage of the integrated model is remarkable. PEKK and PEEK materials have similar chemical structural material characteristics. They are all special engineering plastics with excellent properties such as high temperature resistance, self-lubrication, easy processing, and high mechanical strength. Application areas include aerospace, medical devices, automotive manufacturing, etc., and are expected to benefit from increased demand for humanoid robots in the future. Kaisheng has a PEKK production capacity of 1,000 tons/year. PEKK has an extremely high entry barrier. The company can produce continuous and large-scale production, and the technology has reached the international advanced level. Through an integrated industrial model, it produces its own high-purity aramid monomers to supply PEKK, which has a cost advantage. As product prices drop, the company's PEKK products are expected to open up new application markets.
Profit forecast, valuation analysis and investment recommendations: We expect the company's net profit to be 1.7/26/4.4 billion yuan in 2023-2025, up -26.0%/51.5%/68.5% year over year, corresponding to PE 34.0/22.4/13.3 times on January 31, 2024, covering a “buy-B” rating for the first time.
Risk warning: downstream demand for aramid falls short of expectations, industry competition intensifies; production capacity release of new products falls short of expectations; sharp rise in raw material prices, etc.