The company's existing 200000 tons of ethylene EO production capacity is an important reason why it has become the leader of domestic EO intensive processing. The expansion and transformation to 300000 tons is expected to further consolidate the company's cost advantage. The company actively layout business transformation, it is expected that the water reducer monomer business will continue to develop steadily, DMC, pharmaceutical polyethylene glycol, surfactants and other new business is expected to open long-term development space. We maintain the company's 2020-2022 homing net profit forecast of 4.1 million yuan 52pm, corresponding to the EPS forecast of 0.60Universe 0.76Universe 0.90 yuan, the current share price corresponding to 2020-2022 PE times that of 22-17-15, still optimistic about the company's long-term growth and business transformation brought about by the valuation improvement, maintain the "buy" rating.
The company plans to expand the capacity of Jiangsu Oke's 200,000 tons / year ethylene oxide production plant to 300,000 tons / year. The company issued an announcement on March 5, 2021. According to the company's strategic development and the needs of production and operation, in order to achieve high-quality intensive development and further improve production efficiency, Jiangsu Oke Chemical Co., Ltd., a wholly owned subsidiary of the company, will expand and transform the completed 200,000 tons / year ethylene oxide (EO) production plant with its own capital of 35 million yuan on March 6, 2021, so that the production capacity will reach 300,000 tons / year. Ethylene oxide production capacity increased by 50%.
At the same time, in order to ensure the safe and stable operation of the production plant, Jiangsu Oke overhauled the production plant synchronously, and it is estimated that the capacity expansion and renovation project and the maintenance time will be about 50 days.
The cost advantage of ethylene EO production capacity is an important reason for the company to become a leading EO finishing enterprise, and this expansion can significantly thicken the company's performance. We estimate that the average price difference of EO- ethylene in China from 2018 to 2020 is 4129 yuan / ton, 3503 yuan / ton and 3424 yuan / ton respectively, and the average price difference of polycarboxylic acid superplasticizer monomer-EO is 2370 yuan / ton, 2514 yuan / ton and 2302 yuan / ton respectively. Significant excess income can be obtained when ethylene is used as raw material to produce ethylene oxide downstream products. The company will expand the production capacity of 200,000 tons / year ethylene EO to 300000 tons, assuming: (1) the expanded production of 100000 tons can be full production; (2) the price difference of EO- ethylene is the same as in 2019, it is 3500 yuan / ton; (3) the per ton processing fee + depreciation is 1500 yuan / ton. After 100000 tons of production capacity is put into production, the corresponding annualized gross profit is 200 million yuan, which can increase the company's gross profit by 27% compared with 748 million yuan in 2019.
Positive transformation of EO downstream high value-added areas, lithium battery electrolytes and pharmaceutical accessories related business is worth looking forward to. Ethylene oxide is the second largest downstream product of ethylene, with more than 5000 EO derivatives worldwide. In addition to superplasticizer monomers, the company is actively transforming to the downstream high value-added fields of EO, such as lithium battery electrolyte solvents and additives, pharmaceutical polyethylene glycol, surfactants and so on. On October 27, 2020, the company announced that the 20, 000-ton new energy lithium battery electrolyte solvent project was put into production. From November to December 2020, the company's EC/DMC production and sales rate was about 95%, sales volume was about 3500 tons, gross profit was about 10 million yuan, gross profit was about 38%, and we estimated that the company's capacity operating rate was about 110%. On March 4, 2021, the company disclosed on the interactive platform of Shenzhen Stock Exchange that the relevant electrolyte solvent products have passed the certification of downstream mainstream battery manufacturers and have been supplied to the outside world. According to the New Energy Automobile Group of CITIC Securities Research Department, the sales of new energy vehicles in China and the world in 2025 will reach 4-5 times that of 2020. EC/DMC is the current mainstream lithium battery electrolyte solvent, which is expected to increase rapidly with the growth of new energy vehicle sales.
Suzhou Huayi, which is a shareholder of the company, is mainly engaged in the production of electrolyte additives such as VC, FEC, PS, VEC and so on. At present, it has stable and high-quality downstream customers and can produce good coordination with the company. The company is expected to benefit from the high value-added business downstream of EO and continue to grow for a long time.
Risk factors: fluctuations in product and raw material prices; lower-than-expected development of new business; and a sharp decline in infrastructure investment.
Investment suggestion: the company's existing 200000 tons of ethylene EO production capacity is an important reason why it has become the leader of domestic EO intensive processing. The expansion to 300000 tons is expected to further consolidate the company's cost advantage. The company actively layout business transformation, it is expected that the water reducer monomer business will continue to develop steadily, DMC, pharmaceutical polyethylene glycol, surfactants and other new business is expected to open long-term development space. We maintain the company's 2020-2022 homing net profit forecast of 4.1 million yuan 52pm, corresponding to the EPS forecast of 0.60Universe 0.76Universe 0.90 yuan, the current share price corresponding to 2020-2022 PE times that of 22-17-15, still optimistic about the company's long-term growth and business transformation brought about by the valuation improvement, maintain the "buy" rating.