Linuo Tebo: A market leader in the specialty glass segment. The company's main products include medium borosilica/low borosilicate pharmaceutical glass and high borosilicate heat-resistant glass. Every two microwave ovens in the world use a heat-resistant tray produced by Linuo. In 2010, the company signed a strategic agreement with Italian advanced equipment manufacturer OCMI to start the borosilicate pharmaceutical glass business. In 2022, the company added a borosilicate pharmaceutical molded bottle production line and a borosilicate pharmaceutical glass tube production line. In 2022, the company's production capacity of borosilicate pharmaceutical glass bottles reached 1,708 million units.
Industry: Borosilicate glass, pharmaceutical packaging material upgrade+ “domestic replacement”. In 2021, the penetration rate of borosilicate glass in China was 15.4%, far below the international average of 70%. The consistency evaluation of injections promotes the upgrading of low borosilicate glass to medium borosilicate glass, and the implementation of related review and approval systems accelerates the concentration of the pharmaceutical packaging industry and catalyzes scale effects. At present, the borosilicate molding process has basically been overcome, but foreign investment still has a significant advantage in controlling the process. In recent years, domestic enterprises have accelerated their entry into the “tubing” industry, and the domestic production substitution process is speeding up.
Linuo Pharmaceutical: Crossing from 0 to 1, borosilicate molded bottles in Nuggets. The first-mover advantage of control bottles: The company's control bottle base has been consolidated, and production has been continuously expanded in recent years, increasing the self-sufficiency rate of glass tubes and further reducing costs. The company began production of control bottles at the beginning of its establishment. By the end of 2023Q1, the company's annual production capacity of low borosilicate control bottles reached 2.07 billion units (+250 million compared to 2022 production capacity), and the annual production capacity of medium borosilicate control bottles reached 2.58 billion units (+870 million compared to 2022 production capacity). On October 28, 2022, the kiln for the company's borosilicate medicinal glass tube drawing project was officially ignited. After commissioning, it is expected to produce about 5,000 tons of borosilicate medicinal glass tubes per year, further improving the company's industrial chain, reducing the cost of the company's borosilicate pharmaceutical glass products, and effectively enhancing the company's market competitiveness in the field of borosilicate medicinal glass. The latecomer advantage of borosilicate molded bottles: Currently at a critical stage in the localization of borosilicate, the company is seizing the opportunity to actively expand its production capacity layout. The company's first borosilicate molded bottle project started in August '22. It can produce about 5080 tons of borosilicate molded bottles per year. All other projects under construction are expected to be completed by the end of 2024. After production is put into operation, the company's borosilicate molded bottle production capacity will reach 63,000 tons/year.
On April 30, 2024, the company announced that the borosilicate glass molded injection bottle (5ml-500ml) had completed conversion A, indicating that the borosilicate glass molded injection bottle produced by the company can be officially sold in batches.
Heat-resistant & electric light source glass: Excellent profitability, strong production and sales. The company's heat-resistant glass products include heat-resistant utensils and microwave trays. It cooperates with well-known domestic and foreign household appliances and household goods companies such as Galanz, Midea, and the gross margin is significantly higher than the same industry level; electric light source glass products include mechanical glass cases, control glass cases, and electric light source tubes. In recent years, the production and sales rate of the company's heat-resistant glass+electric light source glass has been high, and the decline in raw material prices is expected to further restore profitability.
Investment suggestions: We are optimistic about the horizontal expansion of the Borosilicate Molded Bottle market with high entry demand and oligopoly, contributing to performance flexibility; ② Self-supply of borosilicate glass tubes optimizes profit levels for controlled bottles; ③ restoration of profitability due to falling raw material prices. The company's revenue for 2024-2026 is expected to be 13.22, 16.12, and 1,842 million yuan, respectively, and net profit to the mother is 1.55, 2.21, and 262 million yuan respectively. The corresponding PE was 26, 18, and 15 times covered for the first time, giving it a “recommended” rating. ①
Risk warning: Risk of cost fluctuations, policy progress falls short of expectations, capacity release progress falls short of expectations, and development of new products falls short of expectations.