Based on differentiated nylon slice production, performance has grown rapidly. Polymerization is mainly engaged in R&D, production and sales of new nylon materials. Its main products include three categories: fiber-grade slices, engineering plastic-grade slices, and film-grade slices. By the end of 2023, the company's equity production capacity had reached more than 400,000 tons. Since its establishment, the company has been positioned as a high-end nylon 6 chip. With its differentiated competitive strategy and advantages, the quality of the company's products is higher than that of ordinary nylon 6 slice companies, and it also has a certain degree of competitiveness compared to high-end imported products. In 2023, the company achieved operating income of 6.018 billion yuan, a year-on-year decrease of 0.31%; achieved net profit of 197 million yuan, a year-on-year decrease of 18.78%; realized net profit after deduction of 192 million yuan, a year-on-year decrease of 18.63%; and achieved net operating cash flow of 520 million yuan (46% year-on-year increase), which was a positive increase for 5 consecutive years, and the cash flow situation improved markedly.
Nylon 6: CPL breakthroughs drive the development of the industry, but the market is still dominated by the middle and low end. Domestic demand for PA6 reached more than 4 million tons in 2023, and downstream is mainly driven by fiber, engineering plastics and film; supply-side production capacity continues to expand, reaching 6.42 million tons in 2023, but the structure is still dominated by low- and mid-range products, and the import dependency of high-end products is still strong. The company is positioned as a high-end differentiated nylon 6 product, leading the technology and process industry. Coupled with the active promotion of the Hangzhou Phase II 124,000 ton nylon 6/nylon copolymerization project (expected to be put into operation in 24 years) and the Tengzhou Phase II 180,000 ton nylon 6 project (expected to be put into operation in 26 years), the company's performance is expected to continue to improve due to the release of production capacity and market conditions.
Nylon 66: A breakthrough in the domestic production process of adiponitrile, which is expected to recreate the history of rapid development of nylon 6. The overall performance of nylon 66 is superior to nylon 6, but due to process barriers of the raw material adiponitrile, domestic prices have remained high.
In recent years, with breakthroughs in the domestic production process of adiponitrile, domestic adiponitrile and nylon 66 production capacity is expanding at an accelerated pace, and the industry pattern is expected to improve. Based on the mature nylon 6 production process, the company is expanding the nylon 66 market and actively building the 80,000-ton nylon 66 project in Zibo Phase I (expected to be put into operation in 25 years). The production base of the Zibo Phase I project is adjacent to Tianchen Qi Xiang. At the same time, China's Tianchen increased capital and shares in Shandong Polyshun. Cooperation between the two in the upstream and downstream nylon 66 industry chains is expected to be deepened, opening up room for the company's long-term growth.
The dividend ratio has been greatly increased to facilitate long-term value revaluation. The company's average dividend ratio for 20-22 was 27.27%, and according to the company's 2023 annual profit distribution plan, the company plans to distribute a cash dividend of 2.85 yuan (tax included) for every 10 shares, totaling about 90 million yuan (tax included), accounting for 45.72% of net profit to mother in the 2023 consolidated statement. Based on the closing price on April 19, the dividend rate is about 3.0%. We believe that in anticipation of a steady increase in the company's operating performance, the significant increase in the dividend ratio shows confidence in the company's future development, and the long-term value is expected to be revalued.
Investment advice: We expect net profit to be 2.80, 385, and 482 million yuan in 2024-2026, respectively, with corresponding dynamic PE being 12X, 9X, and 7X respectively. The company has many years of experience in R&D and production of nylon 6 polymerization processes, and has multiple advantages in product quality and stability. The layout of the new product nylon 66 forms the company's second growth curve. Benefiting from the future development trends of the PA6 and PA66 industry and the pace of the company's production capacity expansion, we continue to be optimistic about the company's future growth space, covered for the first time, and gave it a “recommended” rating.
Risk warning: the risk of increased competition in the industry; the risk of fluctuating raw material prices; the risk of project implementation falling short of expectations.