A leading domestic cellulose ether enterprise, with rich products and a wide range of uses. The company has been deeply involved in the cellulose ether industry for more than 20 years. Its products cover building material grade, pharmaceutical grade and food grade nonionic cellulose ether. By the end of 2022, the company had a cellulose ether production capacity of 34,000 tons/year; the Zibo Heda 410,000 tons/year cellulose ether project (phase I) was gradually put into operation starting in 2023; in 2023, the company added 10,000 tons/year HEC production capacity to further expand its product range through the acquisition of Zhongfuzhi shares. The company has a total cellulose ether design capacity of 85,000 tons/year, which has a certain scale advantage. Compared with other domestic companies piling up low-end building material-grade cellulose ether racetracks, the company has gained a competitive advantage through high-end products and rich applications.

The business extends to vegetable capsules, and there is plenty of space to replace gelatin capsules. The company relies on its subsidiary Hershey Capsule to develop the vegetable capsule business. By the end of 2022, it had a vegetable capsule production capacity of 30 billion capsules/year. After the construction project is completed, the production capacity will reach 50 billion capsules/year. Compared with traditional gelatin capsules, vegetable capsules have significant advantages in terms of safety, stability, and environmental protection. Currently, they are mainly used in the field of health products. In the future, as the public's concept of a green and healthy lifestyle deepens, the penetration rate of plant-based capsules is expected to further increase. In the pharmaceutical field, the second-generation HPMC vegetable capsules developed by the company were officially registered with the National Drug Administration at the end of 2023; in addition to continuing the low moisture content, good toughness, chemical stability, and smooth filling of first-generation HPMC capsule products, the next-generation vegetable capsules can further optimize the appearance and dissolution performance, which can help pharmaceutical companies to better complete drug development and marketing. In the future, the company's second-generation vegetable capsules are expected to be widely used in pharmaceutical preparations.

Global strategic layout, exploiting overseas markets. The company is based in China and relies on two major branches in Europe and the United States to expand its business to more than 100 countries and regions around the world, accounting for 60.63% of export revenue in 2022. With the recovery of overseas demand and the gradual release of the company's new production capacity, we expect the company's performance to bottom out and rebound from 2024, with strong growth momentum.

Investment advice

Investment advice: The company is a leading cellulose ether enterprise, actively exploring overseas markets and emerging application areas. As overseas demand picks up and new production capacity is invested, the company's performance is expected to enter an upward channel. We predict that in 2023-2025, the company's revenue will be 17.69/24.25/2,625 billion yuan, respectively, with year-on-year growth rates of 2.65%, 37.10%, and 8.25%, respectively, net profit to mother of 2.82/3.92/452 billion yuan respectively, year-on-year growth rates of -20.28%, 39.00%, 15.25%, EPS of 0.83/1.15/1.32 yuan/share, and PE corresponding to the closing price on April 18, 2024 will be 16.72x, 12.03x, 10.44x First coverage, giving a “buy” rating.

Risk warning

Market development falls short of expectations, market competition increases risk, international trade risk, raw material price fluctuation risk