Main points of investment:
Domestic silicone material manufacturer. Dongyue Silicon specializes in the research, development, production and sales of silicone materials, and its main products include silicone rubber, silicone oil, fumed silica and other organosilicon downstream processing products as well as organosilicon intermediates. It is one of the largest enterprises in China's silicone industry. From 2016 to 2019, the company's revenue was 1.692 billion yuan, 2.441 billion yuan, 3.401 billion yuan and 2.733 billion yuan respectively, and the net profit of returning mother was 61 million yuan, 310 million yuan, 663 million yuan and 553 million yuan respectively. From 2016 to 2019, the company's gross profit margins were 12.36%, 27.81%, 37.20% and 27.69%, respectively.
The production capacity of organosilicon in China is expanding rapidly. In the past decade, the increase of global polysiloxane production capacity mainly comes from China, and overseas production capacity increases slowly due to the influence of raw materials, cost, market and other factors. At present, the global production capacity of polysiloxane is mainly concentrated in China, Western Europe, North America, Japan, South Korea and other developed countries and regions. According to SAGSI data cited in the prospectus, the global production capacity of polysiloxane in 2018 is 254.8 million tons / year, with China's production capacity of about 141.5 million tons / year, accounting for 55.5 percent; developed countries' production capacity is about 106.3 million tons / year, accounting for 41.7 percent; and other regions' production capacity is about 700,000 tons / year, accounting for only 2.8 percent. In the future, there are still many new plans for polysiloxane production in China. It is estimated that China's polysiloxane production capacity will reach 1.96 million tons per year in 2023, and the total global polysiloxane production capacity will reach 309.2 million tons per year in 2023, with an output of 2.68 million tons.
Profitability has declined. From January to September 2019, the company's revenue grew rapidly, mainly due to a sharp rise in product prices in 2017-2018. The average sales price of the company's products in 2017 and 2018 was 17077.81 yuan / ton and 22769.22 yuan / ton respectively, an increase of 53.67% and 33.33% over the same period last year. From January to September 2019, the average sales price of the company's products dropped to 14700.11 yuan / ton, down 35.44% from 2018.
Fund-raising projects to increase production capacity. The company IPO plans to raise 4.5 billion yuan for "300,000 tons / year silicone monomer and 200,000 tons / year silicone downstream products deep processing project", "silicone monomer device energy saving and environmental protection technical renovation project", "silicone R & D center project" and "supplementary liquidity project" four projects. We believe that the company's production expansion will help to further expand the capacity scale and market share, at the same time enlarge and strengthen the silicone industry chain and improve the layout of the downstream deep processing field.
Profit forecast. We estimate that the net profit of the company from 2020 to 2022 will be 459 million yuan, 517 million yuan and 603 million yuan respectively, and the corresponding EPS will be 0.38,0.43 and 0.50 yuan respectively. Considering that the company is a new stock and gives a certain valuation premium, we give the company 22-28 times PE in 2020, corresponding to a reasonable value range of 8.36-10.64 yuan, giving a neutral rating for the first time.
Risk tips: raw material price fluctuations, the risk of unstable market demand.
