The company's recent situation

On August 12, the company issued the “Notice on Jointly Investing in Integrated Projects with Zhenhai Refining and Chemical” 1. The subsidiary Wanma Polymer, Sinopec Ningbo Zhenhai Refining & Chemical Co., Ltd. (hereinafter referred to as “Zhenhai Refining and Chemical”, and Ningbo Zhongpu Petrochemical Investment Group Co., Ltd. intend to jointly sign a “Joint Venture Letter of Intent” to jointly fund the establishment of a joint venture and carry out the investment, construction and operation of integrated polymer materials projects. The joint venture's shareholding ratio is Wanma Polymer, Zhenhai Refining & Chemical, and Ningbo Zhongpu Petrochemical, etc., respectively.

reviews

The joint venture plans an integrated cable insulation material project with an annual output of 0.7 million tons, mainly medium- and low-voltage products. According to the announcement, the joint venture cooperation includes an integrated project with an annual production capacity of 0.3 million tons of chemical crosslinked cable materials, an annual production capacity of 0.4 million tons of silane crosslinked cable materials, and related supporting facilities such as raw material warehousing/packaging. According to the “Joint Venture Letter of Intent”, the cooperative Zhongzhenhai Refining & Chemical has an FDPE plant with an annual production capacity of 0.4 million tons. The joint venture and Wanma Lin'an base will prioritize the procurement of its products. The former can directly transport FDPE products through pipelines (integrated project construction and transportation pipelines), and the product pricing is settled according to the East China listing price of the corresponding FDPE product minus the integrated cost savings fee.

After the implementation of the integrated project, it is expected to help reduce costs and improve the quality of medium- and low-voltage products, and further expand the company's competitive advantage. We believe that integrated projects can bring cost reduction and quality improvement to the company, further enhance the company's competitive advantage in the field of medium- and low-voltage insulation materials, and help the company continue to expand its domestic and foreign market share: 1) Cost reduction:

Raw materials are directly transported through pipelines, which can reduce granulation, packaging, transportation and related labor depreciation costs; 2) Quality improvement: A single source of raw materials can reduce fluctuations in the quality of products made from different raw materials and improve the consistency of finished insulation products.

At the same time, we are increasing cooperation with Sinopec for medium- and high-voltage products to actively promote domestic substitution. Previously, the company had signed a “Strategic Cooperation Agreement” 2 with Sinopec. It plans to carry out joint development of 110kV and above ultra-high voltage cable bases on Shanghai Petrochemical LDPE1 series installations to actively promote domestic replacement of medium- and high-voltage cable insulation materials.

Profit forecasting and valuation

Considering the impact of the rise in copper prices on the 24-year profit of the cable business, we lowered the company's 2024 profit forecast 7% to 0.613 billion yuan, while 2H24 copper prices have gradually declined. We expect it to have less impact on the 25-year results. We maintain the 2025 profit forecast of 0.803 billion yuan; lower the target price by 9.1% to 10 yuan. The current stock price corresponds to 2024/2025 11.0x/8.4x P/E, and the target price corresponds to 2024/2025 16.9x/ 12.8x P/E, target price with 53.8% upside, maintaining the industry rating.

risks

Investment in power grids fell short of expectations, copper prices fluctuated greatly, and domestic charging pile construction fell short of expectations.