Description of the event

The company issued an announcement: it plans to use 35 million yuan to 70 million yuan to repurchase shares for future equity incentive plans or employee stock ownership plans. The repurchase price will not exceed 50 yuan/share (inclusive).

Incident comments

The company's intention to repurchase shares shows confidence. The company plans to repurchase shares at 35 million yuan to 70 million yuan, using the maximum repurchase price of 50 yuan/share (inclusive). The share repurchase ratio is 0.65%-1.30% of the total share capital. Based on confidence in the company's future development and recognition of its long-term value, in order to maintain the interests of all shareholders of the company, improve the company's long-term incentive mechanism, make full use of the talent gathering effect of listed company platforms, and more closely and effectively combine shareholders' interests, company interests and employee interests, the company plans to repurchase some of the company's A shares of the public public shares for future equity incentives or employee stock ownership plans.

Container paint volume has clearly recovered, and the economy is expected to continue to improve. This round of recovery in the container industry began in the fourth quarter of 2023. Global commodity trade showed signs of steady recovery. At the same time, in response to the impact of events such as the protracted Red Sea crisis, the industry's willingness to prepare containers increased markedly. The Bureau of Statistics's container production data for last year's Q4 and this year's Q1 were +43% and +125%, respectively. In April of this year, the year-on-year increase continued to reach 152%, driving the continued high demand for container coatings. We believe that the boom in the container industry is expected to continue to improve. First, container turnover is slowing down due to deviations, and empty container return is increasing, which means that more new containers need to be invested in new containers; second, the container adaptation requirements for future delivery of new shipbuilding capacity are more deterministic. Currently, the box/trough ratio is already at a normal low level, which means that the current tank fleet size cannot meet the demand for container equipment for future ship capacity delivery. Judging from future new ship delivery plans, 2024-2026 is still a centralized delivery period for new container capacity, with medium- to long-term support for new container capacity .

On the price side, how do you view the price trend of container paint? Freight prices have risen sharply, and the increase in paint is lagging behind, but we think we can keep up in the future. Catalyzed by the Red Sea incident, the current round of freight rates bottomed out. The Drewry World Container Freight Index WCI rose sharply from about 1,400 US dollars/FEU at the bottom to about 4,000 US dollars/FEU in January of this year, then fluctuated from a high level after February and fell to about 2,700 US dollars/FEU at the end of April. However, due to the Red Sea problem, capacity was tight, and freight rates rose again since May. This week (June 9, 2024), WCI rose above $4700 per FEU. However, with regard to container paint prices, there is currently no significant rise, but we think it is expected that the future will catch up. First, manufacturers were concerned that the Red Sea incident brought about an occasional surge in demand, so they adopted a strategy of competing for orders at low prices, but since the second quarter, the normalization of detours and improvements in demand have become more clear, manufacturer orders are saturated, and competition is expected to ease; second, we believe that shipowners' profit recovery has been transmitted to the container manufacturing process. Container manufacturers have continued to raise prices recently, which is expected to spread to the coating industry. Currently, container paint prices in Mecca are still recovering from the bottom, and we are concerned about subsequent price increases.

The pace of wind power has been fixed, and attention is being paid to the mid-term growth of marine coatings, etc. As for the wind power sector, installed capacity is expected to maintain steady growth throughout the year. The pace of wind power will accelerate again after the second quarter, and wind power towers and overseas markets are expected to gradually expand. At the same time, the company is moving towards an industrial coating platform, starting to enter the multi-billion yuan wind power and container paint market to the 30 billion yuan marine paint market. Photovoltaic frame coatings, offshore coatings, etc. are expected to gradually expand, and medium-term growth is worth looking forward to.

The estimated net profit for 2024-2025 is 260 million yuan or 360 million yuan, corresponding to the PE valuation 15 or 11 times, and continues to be recommended.

Risk warning

1. The container industry is recovering slowly;

2. The installed capacity of wind power is lower than expected.