Leading nonionic cellulose ether company, actively exploring and entering the vegetable capsule industry. The company is committed to the development, production and sales of nonionic cellulose ether products. Currently, its main products include building material grade, pharmaceutical grade and food grade cellulose ether. Currently, it is the first domestic and fourth largest supplier of cellulose ether in the world. The company's building-grade cellulose ether is widely used in the mortar field. The downstream of pharmaceutical-grade cellulose ether mainly includes the production of pharmaceutical sustained-release preparations and plant capsules. Food-grade cellulose ether can be used as an emulsifier, binder, thickener and stabilizer. At the same time, the company is actively developing downstream, independently developing HPMC plant capsule products, and the capsule business is developing rapidly. In 2019, the company achieved revenue of 1,113 billion yuan, an increase of 21.87% over the previous year, and realized net profit of 158 million yuan, an increase of 114.72% over the previous year.

Building grade cellulose ether powers high-end products and has high-quality customer resources. The company's building-grade cellulose ether mainly uses high-end models. Its main application areas include dry mortar fields such as insulation mortar, tile adhesives, self-leveling, wallpaper glue, etc. The company's main downstream customers include Mapei (Mapei) in Italy, Saint-Gobain (Saint-Gobain) in France, Knauf Gips KG (Knauf Gips KG) in Germany, and Beijing Oriental Yuhong etc.

The market space for plant capsules is vast, and the company is actively developing. Compared with animal gelatin capsules produced using traditional methods using animal bone skin as raw materials, vegetable capsules are pollution-free, natural, have a longer shelf life, higher safety, and broad market prospects. Developed countries have the technology to continuously produce HPMC vegetable capsules on a large scale, and production and sales volume are large; however, China's HPMC plant capsule industry started relatively late. Currently, production and sales volume is small, and market demand potential is huge. The company has independently developed HPMC plant capsule products through the extension of the original cellulose ether industry chain, and has a large-scale production process that can continuously produce HPMC vegetable capsules. The company announced in May 2020 that it plans to invest 118 million yuan to upgrade existing capsule production lines and build 14 new production lines. After delivery, the company will increase production capacity by 11.5 billion capsules/year, with a total production capacity of 20 billion capsules/year.

Expand cellulose ether production capacity and consolidate the leading position in the industry. In September 2020, the company announced that its wholly-owned subsidiary plans to invest in the construction of 41,000 tons of cellulose ether production capacity. The first phase of the project includes 20,000 tons/year cellulose mixed ether production line, 10,000 tons/year hydroxypropyl methylcellulose ether production line, 1,000 tons/year ethyl cellulose ether production line; the second phase of the project includes 10,000 tons/year cellulose mixed ether production line. We believe that with the expansion of production capacity, the company is expected to further expand its competitive advantage within the industry, and the scale of revenue and profit will reach another level.

Profit forecast and valuation range. We expect the company's EPS for 2020-2022 to be 1.28, 1.58, and 2.02 yuan/share, respectively. Combined with comparable company valuations, we carefully give 23-25 times PE in 2021, corresponding to the reasonable value range of 36.34-39.5 yuan, which is superior to the market rating for the first time.