A leader in the silicone sealant industry, revenue and profit are growing rapidly

Silicon Bao Technology is a leading domestic silicone sealant company. Revenue grew from 83 million yuan in 2006 to 2,606 million yuan in 2023, with a compound annual growth rate of 22.5%. Net profit attributable to the parent company increased from 13 million yuan to 315 million yuan in 2023, with a compound annual growth rate of 20.5%.

The construction industry is the largest application area for silicone sealants. Prefabricated buildings are expected to drive demand growth. Silicone room temperature adhesives have excellent aging resistance, good adhesion, and easy construction. In 2020, China's construction sector consumes about 60% of the total consumption of silicone sealants. In February 2022, the Ministry of Housing and Construction issued the “14th Five-Year Plan for the Development of the Construction Industry”, which proposes that by 2025, prefabricated buildings will account for more than 30% of newly built buildings. Prefabricated buildings have developed rapidly in recent years. The total prefabricated construction area in the country reached 2.4 billion square meters in the first half of 2022. Newly constructed prefabricated buildings accounted for more than 25% of the newly built construction area. In that year, the prefabricated construction area was 1.1 billion square meters, an increase of 48.6% over the previous year. Prefabricated building construction methods will have many joints, and sealants need to be applied to waterproof them, and the amount of glue used is significantly higher than traditional construction methods. We believe that the rapid increase in the share of prefabricated buildings is expected to drive the growth rate of demand for construction sealants.

Industrial rubber products are the main growth point of the company's performance in recent years

In 2018, the company entered the automotive windshield business by integrating “Heitman” in Zibo, Shandong. In 2019, it achieved a breakthrough in the automotive windshield business. The products were used by well-known manufacturers such as Yutong Bus and Jinlong Bus. In April 2020, the company completed the acquisition of 100% of Tuoli Technology's shares with 255 million yuan in cash, further expanding the company's industry layout in the field of industrial rubber, enriching the product line, and increasing the company's share of the industrial rubber market. The company seizes the opportunity of rapid growth in the “new three” industries of electric vehicles, lithium batteries, and photovoltaics. With strong technological innovation capabilities, the company continues to increase brand investment, respond to customer needs in a timely manner, expand new application fields, and maintain rapid growth in the fields of photovoltaic solar energy, automobile manufacturing, electronic appliances, and power batteries.

The layout of silicon-carbon anodes is expected to form a “dual main business” development model

The company began laying out silicon-carbon anode materials in 2016, and built a 50-ton/year silicon-carbon anode pilot production line in 2019. The project passed the results certification of the Sichuan Provincial Department of Economy and Information Technology, and the product certification results are at the international advanced level. In April 2023, SiBao New Energy, a wholly-owned subsidiary of the company, invested 30 million yuan to build and put into operation a 1,000 ton/year silicon-carbon anode production line for power batteries. By the end of '23, the company's products had been tested by 19 power battery manufacturers, cylindrical battery customers, and 7 3C battery factory customers. They had achieved order breakthroughs and were currently being delivered in batches according to customer needs.

Profit forecast and valuation: Based on the company's production capacity and product price situation, the company's net profit for 2024-2026 is estimated to be 3.69/4.46/546 million yuan respectively, the corresponding EPS is 0.94/1.14/1.40 yuan, respectively, and the PE corresponding to the current price is 14.48/11.98/9.78 times, respectively. For reference, the average PE of comparable listed companies in 2024 was 18.76 times. The company was given 18-20 times PE in 2024, corresponding to a target price of 17-18.9 yuan/share. For the first time, coverage was given, and a “buy” rating was given.

Risk warning: the impact of macroeconomic regulation; risk of large fluctuations in raw material prices; risk of accounts receivable; risk of new project construction falling short of expectations; risk of stock price fluctuations; the estimates in this paper are subjective