2020 and 1Q21 results are in line with our expectations
The company announced its 2020 results: income 5.708 billion yuan, YoY-10.7% (adjusted caliber); return to the mother net profit 403 million yuan, YoY + 14.4% (adjusted caliber), corresponding to 0.59 yuan per share, in line with expectations.
In addition, the company announced 1Q21 results: income 1.382 billion yuan, YoY + 83.2% (adjusted caliber); return to the mother net profit of 51 million yuan, YoY + 281.8% (adjusted caliber), corresponding to 0.08 yuan per share, in line with expectations.
Development trend
EO expands production and strengthens its main business. As a leader in the domestic ethylene oxide fine and deep processing industry, the company's leading product polyether monomer occupies more than 40% of the market share in the main fields of the country, and always maintains the leading position in the industry. The company recently announced that it plans to expand the capacity of the completed ethylene oxide production plant of 200,000 tons / year with its own capital of 35 million yuan, so that the production capacity can reach 300,000 tons / year, and the production capacity of ethylene oxide will be increased by 50%. With the substantial increase in production efficiency, we believe that the company is expected to further reduce production costs and enhance corporate profitability.
DMC for lithium electricity is expected to develop rapidly. The EO method DMC/EC, which was practiced by the company for the first time, gradually entered the formal production and operation state in 4Q20. The company's annual report revealed that the sales volume of lithium battery electrolyte solvent additives in 2020 was 3938 tons, the gross profit was 10.27 million yuan, and the gross profit margin was 34.84%. Due to the long verification cycle of electrolyte-grade products, we expect the company to gradually increase its share through efforts, and potential customers include Huayi, New Zebang and other enterprises. Considering the vast market space of DMC and its application in many high-end fields such as lithium batteries and electronic chemicals, we believe that the current 20,000 ton device is only the beginning of Oak's DMC layout, and Oak will learn from the existing experience and quickly enlarge it to achieve multi-point layout in the country. In addition, it should be noted that Suzhou Huayi, which is currently 35% owned by Oak, is a leader in lithium battery additive materials, and we believe that Huayi is expected to use Oak to achieve scale and then quickly increase profits in the future.
Acquire Oak Pharmaceutical Auxiliary shares and cut into the health care business. The company's medical and health plate takes Oke Pharmaceutical Assistant as the main platform, and its products are mainly high-purity polyethylene glycol. At present, the main products of Oak Pharmaceutical Auxiliary are ethoxylated pharmaceutical accessories with an annual output of 10,000 tons of polyethylene glycol; in addition, the company has built and tested a set of 8000 tons / year granulation (polyethylene glycol series) workshop which meets the requirements of EU GMP. In addition to the existing products, we expect that the company may extend to higher value-added APIs and injectable drugs, and may further deploy high-end PEG modifiers in the future. Although the market volume of polyethylene glycol is limited at present, it has great development potential and strong profitability, so we are optimistic about the extension of Oak in the field of medicine.
Profit forecast and valuation
We maintain the company's profit forecast of 531 million yuan in 2021 and introduce the profit forecast of 638 million yuan in 2022 for the first time. The current stock price corresponds to the price-to-earnings ratio of 11 times 2021 and 2022. Taking into account the valuation switch, we raised the target price by 7% to 12.5 yuan, corresponding to a price-to-earnings ratio of 16, 13, 2021, and 2022, with 21% room to rise, maintaining the "outperform industry" rating.
Risk
The macroeconomic downturn has a negative impact on the company's polyether demand; the uncertainty of the company's medium-and long-term growth; and potential operating risks such as environmental protection and safety.