Report guide
Xinhua Co., Ltd. has been deeply involved in fine chemicals for many years and has formed a series of products such as low-carbon fatty amines, organic solvents, and synthetic fragrances. Among them, the aliphatic amine and organic solvent business is progressing steadily, with significant advantages; the fragrance business is deeply tied to overseas giants, and the Ningxia and Jiangsu bases have ushered in significant expansion. At the same time, relying on extraction technology accumulated over many years, the company is actively entering the lithium resources business, which is expected to open up new space for growth.
Key points of investment
Relying on advanced extraction technology, the lithium resource business has begun a new growth curve and the rapid development of new energy sources, driving continuous growth in demand for lithium resources, while also speeding up the implementation of domestic salt lake lithium extraction projects. However, the lithium precipitated mother liquid produced by lithium precipitation is still 20% high concentration of lithium. Xinhua Co., Ltd. has been deeply involved in lithium extraction and extraction for many years. Relying on advanced extraction technology, it has successfully completed the lithium precipitated mother liquor recovery projects of Zangge and Salt Lake Co., Ltd., which also lays the foundation for the implementation of new orders in the future. Meanwhile, with the gradual arrival of the decommissioning period for power batteries, the lithium battery recycling market is expected to enter a stage of rapid growth. According to estimates, the recycling market value will reach 37 billion yuan by 2028. The company's extraction technology has great synergy with lithium battery recycling. Currently, it has a joint venture with Yaoning New Energy and others to build a 100,000 tons/year recycling project in three phases, and also signed a framework agreement with Haichuang Cycle. The company is expected to form technical and channel barriers in the lithium battery recycling industry, showing strong competitiveness.
The fragrance business is tied to overseas leaders, and significant capacity expansion accelerates growth
As living standards continue to improve, the global flavor and fragrance market continues to grow. Currently, the global flavor and fragrance market is highly concentrated, and the industry is gradually shifting to developing countries. After years of development, Chinese fragrance enterprises have strong international competitiveness. The company is a leading domestic synthetic fragrance company and is deeply tied to Givaudan, an important downstream customer. Currently, the subsidiary Jiangsu Xinrui has a fragrance production capacity of 16,000 tons/year, and the Ningxia Xinhua Phase I production capacity is gradually being released. At the same time, the Jiangsu Xinrui renovation and expansion project is expected to add another 18,800 tons/year production capacity by the end of 2024. The company's fragrance business will usher in a period of significant expansion, which is expected to help the company accelerate growth.
The traditional main business is progressing steadily, and the advantages of large-scale technology are obvious
The company is the leading low-carbon fatty amine in China, with 90,000 tons/year of isopropylamine and 45,000 tons/year of ethylamine, with significant scale advantages. In the future, as downstream demand warms up, the triethylamine boom is expected to rise steadily, and the company's fatty amine business is also expected to develop steadily. At the same time, the company also has 90,000 tons/year of isopropyl alcohol, and has two processes, the propylene method and the acetone method to effectively avoid the risk of raw material price fluctuations. The company also plans to build 20,000 tons/year of electronic grade isopropyl alcohol in a joint venture with Xingfu Electronics to actively enhance the added value of products and the profitability of traditional main businesses.
Profit forecasting and valuation
The company's main business is developing steadily, and the synthetic fragrance and lithium resources business are expected to drive the company to start new growth. It is estimated that in 2023-2025, the company's revenue will be 23.99, 30.99 billion yuan, and 4.255 billion yuan, respectively, and net profit to mother will be 2.61, 3.52, and 520 million yuan, respectively. The current price corresponds to PE of 19.62, 14.55, and 9.85, which is covered for the first time, giving it a “buy” rating.
Risk warning
The release of new production capacity falls short of expectations, the promotion of lithium resource business falls short of expectations, the risk of fluctuations in raw material prices, and the risks caused by increased environmental standards.