Based on the business of pharmaceutical and pesticide intermediates, the company extends upward to create the whole industry chain of domestic scarce fluorine fine chemicals, and ploughs down the research and development of high-end medicine, high-efficiency and low-toxic pesticides, BPEF, DFBP and other new material intermediates, and is expected to embrace the huge market of fluorine fine chemicals and continue to release growth in the future.

Main points of investment

Domestic superior enterprises of fluorine fine chemical intermediates

The company is an advantageous enterprise of scarce fluorine fine chemical intermediates in China. at present, it has formed more than 20 fluorine fine chemicals, such as pharmaceutical intermediates represented by 2meme, 3pyrrine, 4pyrrol, 5-tetrafluorobenzoyl chloride, and pesticide intermediates represented by 2meme, 3pyrrine, pyrrolidine, 6-tetrafluorobenzene series. The company expands downstream high value-added new materials such as BPEF (optical resin monomer), DFBP (PEEK synthetic monomer) and fluoropolyimide and fluorine-containing electronic chemicals such as supercapacitor electrolyte, distributes scarce fluorite resources upstream, and opens up the whole industry chain of "fluorite-hydrofluoric acid-fluorine fine chemicals".

The earnings stability brought by fluorite and hydrofluoric acid will be better than market expectations. The market believes that there is volatility in the fluorite and hydrofluoric acid market, and earnings are uncertain. However, we believe that the company to enter the upstream fluorite, hydrofluoric acid field, mainly to consider supporting downstream project construction, while improving the supply chain system. In addition, hydrofluoric acid is not easy to store and transport, fluorite strategic resources are tightened, and the scarcity of fluorine chemical industry upstream resources gradually appears. Gaobao Mining, a subsidiary of the company, has a production capacity of 50,000 tons of hydrofluoric acid, which is in the forefront of China. Sun's Changxing fluorite approved fluorite production capacity of 60,000 tons / year, fluorite cost is low. The company's layout of fluorite and hydrofluoric acid can effectively reduce the cost of the company's products in the short term, and expand the company's new materials, electronic chemicals and other products in the long term. The future profit stability will be better than market expectations. In addition, the company's mastery of fluorite strategic resources is conducive to broaden the downstream extension space, achieve raw material self-sufficiency and build the advantage of fluorine fine chemical industry chain.

The growth of BPEF and DFBP series of new materials projects will be better than market expectations. The market believes that the company mainly focuses on pharmaceutical and pesticide intermediates, and the certainty of new materials projects is insufficient, but we think that the growth of the company's new materials projects will be better than market expectations. First, the company has accumulated a large number of reaction route capacity, high quality and stable production capacity in the business of pharmaceutical and pesticide intermediates, especially the high quality requirements of pharmaceutical intermediates. The company has accumulated international strategic customers such as BASF, and the accumulated technical advantages will be transplanted into the research and development of new materials and electronic chemicals; second, the company has expanded BPEF, DFBP and other important new material products, has cooperated with overseas giants for more than 8 years, and has passed small-scale test, pilot-scale test and product certification, and gradually has the ability to stabilize production and supply and expand. Third, BPEF production capacity has reached 1500 tons / year and is planned to expand 2000 tons / year, and is expected to gradually release in the future; DFBP is an important monomer of PEEK material, with an annual production capacity of 5000 tons will be gradually put into production next year; fluoropolyimide can be used in OLED display devices, quaternary ammonium fluoroborate can be used in supercapacitor electrolyte, the future product demand is great, the company has reserved relevant core technology and is expected to gradually layout.

The development space of pharmaceutical and pesticide intermediates is better than market expectations.

The market believes that the pharmaceutical and pesticide intermediates industry is stable, and there is little room for market development. However, we believe that the proportion of fluorinated pharmaceutical intermediates in pharmaceutical intermediates has increased, fluorinated pesticide intermediates have accelerated the switch to high-efficiency and low-toxic products, and the growth rate of market space is gratifying, of which permethrin accounted for 18.4% in 2014 and 11.6% in the permethrin market in 2011-2015. At the same time, the company is supporting the research and development of the fourth-and fifth-generation fluoroquinolone drugs moxifloxacin and nenofloxacin, in which the 50-ton annual production capacity of nenofloxacin was put into production in May last year and is expected to be gradually released this year; the company is also planning a project of 2pyrrine, 5pyrrine, 6-tetrafluorobenzene series pesticide intermediates, which will continue to contribute to performance growth in the future.

Profit forecast and valuation

Zhongxin fluorine material is a dominant enterprise in the domestic fluorine fine chemical industry. After the acquisition of Gaobao Mining, it is making efforts to build the whole fluorine fine chemical industry chain, and the company has deep technology accumulation, and the development of new materials such as BPEF, DFBP and electronic chemicals has a good future. With reference to the average valuation of the fluorine fine chemical industry (the average PE of the comparable company is 65.5 times, excluding Huabun Technology), and considering that the main business of Lianhua Technology deviates from the company to a certain extent, it mainly refers to the price-to-earnings ratio of Yongtai Technology and Su Li shares. The average price-to-earnings ratio of the two companies is 22.7 times, because Zhongxin fluorine material is a domestic scarce fluorine fine chemical industry chain advantage enterprise, based on pharmaceutical and pesticide intermediates, expand upstream fluorite, hydrofluoric acid resources, extend downstream BPEF, DFBP and other new material products, is expected to release growth in the future, so we give Zhongxin fluorine material a premium of 10% higher than the industry average price-earnings ratio and give the company 25 times PE in 2021. We estimate that the company's net profit from 2020 to 2022 will be 1.03,1.42 and 213 million yuan, and the company's EPS will be 1.00 yuan in 2021, corresponding to the target price of 25.00 yuan in 2021, which will be covered for the first time and given a buy rating.

Risk hint: the risk of product price falling; the project schedule is not as expected.