The company is a leading domestic lubricant additive company. The lubricant additive industry has high industry barriers with rapid expansion of production capacity to speed up product certification. Currently, more than 85% of the market is mainly monopolized by the four major foreign companies. The company currently has a production capacity of more than 200,000 tons of lubricant additives and a production capacity of 550,000 tons under construction. The company has now independently mastered the CI-4 grade and CK-4 diesel engine oil compound formulation process, and the SN grade and SP grade gasoline engine oil compound formulation process. Among them, CI-4, SN, and SP grade compounds have passed the bench tests of authoritative foreign parties, which can meet the needs of different customers, and can also provide various types of customized products according to customer needs. With technical advantages and product advantages, the company has developed into a leading domestic supplier of lubricant additives.
The 100 billion lubricant additive market. Under domestic production, the company's share is rapidly increasing in the 100 billion market for lubricant additives. Taking into account the rapid growth in emerging economies such as India and Brazil, lubricant additives are expected to enter a new cycle of demand growth. It is estimated that by 2025, global demand for lubricant additives will increase to 5.7 million tons, and the market size is about 19.5 billion US dollars.
Currently, the four major lubricant additive companies occupy about 85% of the market. Ruifeng New Materials seized the opportunity of the rapid development of the domestic lubricant industry and rapidly increased its market share. Sales volume of lubricant additives reached 143,000 tons in 2022, with a compound growth rate of 37.6% over the past five years. In the future, the company will continue to maintain cooperation with leading downstream lubricant companies such as Shell, Mobil, Total, Sinopec, and CNPC, and a stable cooperative relationship is expected to drive the company's sales step-wise growth. In terms of domestic customers, the company's sales to Sinopec from January to November 2023 were 106 million yuan, an increase of 50 million yuan over the full year of 2022.
The “brand effect” of large enterprises in the future will also help improve the company's development efficiency for other small and medium-sized customers, and Ruifeng's market share is expected to continue to increase rapidly.
The certification barrier for lubricant additives is high. The company's compound product certification continues to break through API. It is the most widely used certification standard in the lubricant additive industry. Only lubricants that meet the certification standards can be used in the initial market. The API certification process is complicated, the verification cycle is long, and expensive.
Judging from the certification process, it only takes about six months, but the initial accumulation and driving tests often take more than two years. At present, CI-4, SN, and SP grade compounds have passed the bench tests of authoritative third parties abroad, using facts to prove the performance and quality grade of the company's products, which helps to further enhance the company's core competitiveness, takes a solid step for the company to achieve a strategic transformation from single agents to complex agents and from the middle to the middle and high end, and lays a solid foundation for the company to accelerate its entry into the mainstream market. API certification is a prerequisite for lubricant additive companies entering the supply chain of major downstream customers. Products that have passed higher certification often have higher product added value. In the future, as the company's compound products continue to break through and the company's production capacity expands rapidly, the company's products are expected to rise sharply in volume and price.
Investment advice
As a leading lubricant additive company, the company continues to develop key downstream customers. Currently, the company has established cooperation with leading downstream lubricant companies such as Shell, Mobil, Total, Sinopec, and CNPC. The “brand effect” of future large enterprises will help improve the company's development efficiency for other small and medium-sized customers. Ruifeng's market share is expected to continue to increase rapidly in the future. The company is expected to achieve operating income of 34.0, 43.6, and 6.18 billion yuan from 2023 to 2025, and achieve net profit of 6.3, 8.1, and 1.06 billion yuan, respectively. The corresponding PE is 20X, 15X, and 12X, respectively. The first coverage gave the company a “buy” rating.
Risk warning
the risk that the certification of compound products will not pass successfully;
raw material prices and supply risks;
exchange rate risk;
Production safety risks;
Fund-raising project construction risks;
Risk of changes in international policies.