Old trees are blooming, and PU synthetic leather leaders are expected to usher in a new round of takeoff. As a leading domestic PU synthetic leather enterprise, it has significant competitive advantages in terms of cost, customers, and technology. In the future, along with marginal improvements in traditional demand for downstream functional footwear materials and the accelerated release of demand in emerging fields such as TPU products and automobiles, the company's performance is expected to maintain rapid growth. We expect the company's net profit to be 0.73, 1.86, and 260 million yuan, respectively, and EPS of 0.33, 0.86, and 1.20 yuan, respectively. The current stock price corresponds to PE of 35.9, 14.1, and 10.0 times, respectively, covered for the first time, giving it a “buy” rating.

PU synthetic leather industry: The supply pattern is scattered, with promising prospects for emerging fields on the supply side. The competitive pattern of the domestic PU synthetic leather industry is scattered. Currently, there are more than 500 regulated enterprises in the industry, mostly small enterprises. The low-end market is fully competitive, and product homogenization is serious. In the future, as competition in the industry gradually intensifies, backward small and medium-sized enterprises may continue to clear their production capacity, and leading companies are expected to further enhance their pricing capabilities and enjoy brand premiums. On the demand side, downstream demand for synthetic leather is mainly for shoes, clothing, furniture, and bags. Looking ahead to 2024, although demand for sofa furniture may be hampered by poor performance on the completion side of real estate, demand for functional footwear materials is expected to see marginal improvements along with the gradual elimination of downstream inventories. Furthermore, demand in emerging high-end fields such as automobiles, electronic products, sports equipment, and engineering decoration is being released at an accelerated pace, and is expected to contribute an important increase in demand for PU synthetic leather in the future. Among them, according to our estimates, under conservative and optimistic conditions, the domestic PU synthetic leather market for new energy vehicles could reach 2,416 billion yuan in 2030, respectively.

Amway Co., Ltd.: Multiple measures have built a competitive advantage. New products and new demand have helped the company grow the cost side twice. The company's PU synthetic leather production capacity is at the top of the industry, has significant scale advantages, and the subsidiary supplies its own PU resin as a raw material, further reducing production costs. As a client, the company insists on expanding and strengthening the two major dominant categories of functional footwear, sofa and home furnishings, actively cultivating the four emerging categories of electronic products, automotive interiors, sports equipment, and engineering decoration, and has accumulated a large number of high-quality customers in the process. Among them, in the automotive sector, the company is a supplier of well-known automobile brands such as Toyota, Great Wall, Xiaopeng, and BYD, and has obtained some targeted projects and mass production. On the technical side, the company actively lays out new processes and technologies such as ecologically functional, water-based, and solvent-free polyurethane synthetic leather, as well as new products such as TPU, which is expected to contribute key performance increases to the company in the future.

Risk warning: Downstream demand falls short of expectations, large fluctuations in raw material prices, large fluctuations in energy costs, etc.