Key points of investment:

The company is the leading producer of pearlescent pigments in China. The company is the undertaker of the artificial synthetic mica project, the key basic new material of the Ministry of Industry and Information Technology. It has mastered the key core technologies of leading synthetic mica and pearlescent materials, and has formed a complete line of pearlescent materials and synthetic mica products, covering all levels of high, medium and low end, including industrial grade, weather resistance grade, cosmetic grade, etc., with a total of more than 2,000 varieties. The products are widely used in many fields such as coatings, automotive finishes, cosmetics, aerospace, marine anticorrosion, plastics, inks, ceramics, leather, building materials, 3D printing, anti-counterfeiting, seed coating, etc.; it has now formed a marketing network covering major countries around the world, and the products are exported to more than 100 countries and regions around the world.

Fusion acceleration and collaborative integration with CQV achieved phased results. In fiscal year 2023, immediately following the completion of the acquisition of CQV on August 22, 2023, the Group immediately initiated post-acquisition integration work to integrate CQV with the Group's business. The company hires the world's top consulting firms with rich experience in integrating multinational enterprises to fully assist in promoting collaborative integration.

An agreement was signed to acquire Merck's surface solutions business. On July 25, 2024, Global New Materials International Holdings Limited signed an agreement with the German Merck Group to acquire Merck's global surface solutions business for 0.665 billion euros, equivalent to approximately 5.187 billion yuan in cash. The deal is expected to close in 2025. Merck Surface Solutions focuses on providing surface solutions for coatings, cosmetics and industry. It occupies an important position in the high-quality market, and its influence is particularly significant in the global automotive and cosmetics markets.

Global New Materials International and Surface Solutions are highly complementary in terms of product portfolio, expertise and geographical coverage. The proposed merger will strengthen the company's position once the deal is completed and further advance its customer-centric marketing strategy.

Synthetic mica-based new energy battery insulation and flame retardant materials have been commercialized. In 2023, the company and Zhejiang University made breakthroughs in several new energy research and development projects. Among them, synthetic mica-based new energy battery insulation and flame retardant materials have been commercialized. The subsidiary Luzhai Seven Color has developed a variety of synthetic mica functional fillers, which are used in high-end fields such as cosmetic functional fillers and art paints, successfully opening a second runway and creating a second growth curve.

Profit forecast and valuation: We estimate that Global New Materials International's net profit for 24-26 will be $304, 4.40, and 551 million yuan, respectively. Based on the valuations of comparable companies in the same industry, we gave Global New Materials International a 20-22 times PE valuation in 2024, with a corresponding reasonable value range of $5.00-5.50. Based on the exchange rate of HK$1 = RMB 0.92, the corresponding reasonable value range was HK$5.43-5.98. For the first time, coverage gave it a “superior to the market” rating.

Risk warning: Risk of a sharp rise in raw material prices and a risk of falling product prices.