Key points of investment:
Maintain a “prudent increase in holdings” rating. Considering that the company's operations in 2020 were affected by the epidemic to a certain extent, we lowered the company's net profit forecast for 2020 to 2021 and increased the forecast for 2022 to 0.99 (-11%), 1.10 (-1%), and 119 million yuan respectively. The corresponding EPS corresponding to EPS was 0.24, 0.26, and 0.28 yuan respectively. Considering the valuation switch, the company was given 30 times PE in 2021, raising the target price to 7.8 yuan, with 11% upward space to maintain the “cautious increase” rating.
High-tech barrier water treatment materials research and development platform. Times Wharton, a wholly-owned subsidiary of the company, has independent intellectual property rights to manufacture membrane products such as composite reverse osmosis membranes (RO), nanofiltration membranes, ultrafiltration membranes, etc., and has the core technology and large-scale production capacity. It is a domestic reverse osmosis membrane and nanofiltration membrane manufacturer with the highest technical level and the largest scale of operation.
Domestic replacement of reverse osmosis membrane materials exceeded expectations. The market believes that the company's membrane material export business is affected by the epidemic and political relationships, but we believe that the trend of domestic substitution of membrane materials is determined, and the company will benefit the most as a domestic reverse osmosis membrane leader. 1) Reverse osmosis membranes are mainly used in seawater desalination, household water purifiers and industrial water treatment. Judging from the Chinese market, there is a clear trend of import substitution of high-end separation membranes.
At present, China's high-end separation membrane market has long been dominated by overseas brands such as Dow, Heideneng, and Sehan. In total, foreign brands occupy about 85%-88% of China's market. Times Wharton's market share is 9%, making it the absolute leader in domestic reverse osmosis membranes. 2) We believe that with the continuous improvement of the technical level of China's membrane industry, in the context of outstanding cost performance advantages, it is worth looking forward to a further increase in the product market share of leading local companies. 3) The company followed the trend to increase production capacity and adjust product structure to drive steady growth in performance.
Risk warning: There is uncertainty about overseas business expansion; the progress of sewage recycling policies is lower than expected, etc.
Catalyst: Wastewater recycling policy rules introduced.