Invest 230 million yuan to build biodegradable plastic PBAT, and increase the production capacity by 60,000 tons. The company announced that, based on the long-term optimism of the biodegradable materials industry, it is proposed to invest no more than 230 million yuan in the construction of the second phase of the PBAT project in Zibo, Shandong Province, with an annual output of 60,000 tons. The second phase of the project can share the raw material tank area, storage facilities and some auxiliary facilities currently under construction, so the amount of investment is less than that of the first phase (the total investment of the first phase is 320 million yuan). After the two phases of the project reach production, the company will have 120000 tons of PBAT production capacity, and the release of new capacity will help to promote the rapid growth of the company's profits.
The plastic ban policy continues to ferment, and biodegradable plastic projects are expected to bring considerable performance flexibility. So far, 31 provinces and municipalities have issued plastic bans. On the demand side, the three major areas of disposable plastic consumption, including express packaging, shopping bags and disposable tableware boxes, consumed a total of about 6.844 million tons of disposable plastic in 2019. We estimate that the theoretical demand for degradable plastics in China will reach 3.706 million tons in 2025. On the supply side, by the end of 2020, China's PLA and PBAT production capacity were 158000 tons and 304000 tons respectively (including some invalid production capacity). In the past, supply was mainly to meet export demand.
As the domestic demand market begins to open in an all-round way, the contradiction between supply and demand in the degradable plastics industry has intensified. According to the Daily Economic News, the price of PBAT has risen from 23,000 yuan / ton in early December 2020 to 26,000 yuan / ton in early January 2021, and the profit margin continues to increase. As one of the first manufacturers to land PBAT production capacity this year, the company's 120000 tons of PBAT biodegradable plastics project is expected to bring considerable performance flexibility.
The main PVC anti-impact modification auxiliaries are added, with an additional production capacity of 30,000 tons. The company announced that in order to continue to consolidate its market position in the field of PVC impact modifiers, the company intends to invest 60 million yuan to build 30, 000 tons of ACR production capacity. After the project is put into production, the company will have a production capacity of 170000 tons of PVC auxiliaries, of which ACR production capacity will increase from 70, 000 tons to 100000 tons. The company is a leading manufacturer of PVC impact modifiers in China. ACR products are mainly used in pipe profiles, PVC flooring and transparent products to strategically avoid the foamed board field with serious homogenization competition. Therefore, the profitability of the company's ACR products is better than the industry average. The follow-up benefits from: 1) impact modifier ACR+MBS formulation system continues to replace the currently dominant CPE;2) environmental protection, advanced acid process continues to replace water phase process; 3) downstream concentration increases drive PVC auxiliaries industry concentration; 4) domestic PVC floor demand is gradually opened, the company PVC auxiliaries business profit volume is expected to grow steadily, continue to consolidate the leading position.
Profit forecasts and valuation recommendations. We estimate that the operating income of the company from 2020 to 2022 is 2.347 billion yuan, 2.35 billion yuan, 4.308 billion yuan, 2.88 billion yuan, 2.18 billion yuan, 501 million yuan and 7.0 times, respectively, respectively. The corresponding PE is 7.0 times. The company is the leading manufacturer of PVC auxiliaries in China. After the landing of the second phase, 120000 tons of degradable plastic PBAT capacity is expected to bring greater performance flexibility and maintain the "buy" rating.
Risk hint: the price of paper products is downward, the implementation of the policy is not as strong as expected, and the slope climbing progress of new projects is not as expected.