Event
According to the 2018 annual report, Red Polaroid achieved an operating income of 2.467 billion yuan in 2018, an increase of 13.63% over the same period last year; the net profit of shareholders belonging to the parent company was 29.0784 million yuan, down 28.91% from the same period last year; and the net profit after deducting it was 17.1254 million yuan, an increase of 38.24% over the same period last year. Of this total, Q4 achieved an operating income of 584 million yuan in the fourth quarter, an increase of 16.93% over the same period last year, with a net profit of 4.54 million yuan belonging to the shareholders of the parent company and a loss of 13.8 million yuan in the same period of 17 years. At the same time, the company expects to achieve a net profit of 1900-20.5 million yuan for shareholders belonging to the parent company from January to March 2019, an increase of 539% 589% over the same period last year, which is higher than the 18-year Q1-Q4 single-quarter profit.
Company comment
Hard foam polyether and isopropanolamine increased steadily, and the cost increased due to the increase in the price of raw materials.
The company's 18-year revenue of hard foam combination polyether reached 1.545 billion yuan, an increase of 16.26% over the same period last year. The gross profit margin was 10.82%, up 0.57% from the same period last year; the revenue of isopropanolamine business was 797 million yuan, up 12.18% from the same period last year, and the gross profit margin was 18.79%, down 4.97% from the same period last year. The combined unit cost of hard foam polyether and isopropanolamine increased by 9.58%, mainly due to an increase in the average purchase price of propylene oxide by 13.39%. The company has an annual production capacity of 150000 tons of rigid foam composite polyether and matching production of polyether polyols, and the ethanolamine base has an annual production capacity of 90,000 tons of ethanolamine (40,000 tons of isopropanolamine and 50,000 tons of diethanol monoisopropanolamine). The downstream of the company's hard foam combination polyether products are mainly home appliances refrigerators, refrigerated containers, etc., with customers covering Midea, Hisense, Meiling, Electrolux, LG, Samsung and other well-known enterprises at home and abroad. And the company is also developing refrigerated containers, water heaters and other markets. Isopropanolamine is a green fine chemical raw material, which can be used in the production of surfactants, auxiliaries, plasticizers and other products. With the continuous development of downstream customers, polyether business and isopropanolamine business will maintain steady growth.
The trial production of the third environmental protection project is successful, and the DCP project provides subsequent increments.
The company announced on January 9, 2019 that the trial production of Taixing subsidiary's annual production of 120000 tons of propylene oxide was smooth and the product quality reached top grade. The company's environmental protection project adopts the self-developed new co-oxidation process, which is the first set of equipment for this process in China. The company will gradually increase the load of the device in the future, which will help to reduce the cost of the main business and increase the gross profit margin of production.
Another project of Taixing subsidiary is the DCP project with an annual output of 24000 tons. DCP is a new green cross-linking agent, which can be used as a cross-linking agent and polymerization initiator for natural rubber, synthetic rubber, rubber plastics and so on. In recent years, the sales growth rate of DCP industry in China is about 5%, but there are few domestic DCP production enterprises, and the production has high requirements for environmental protection and production safety. The raw material of the company's DCP project is the intermediate product of the third ring project, which will have the inherent advantage of low cost. The first phase of the DCP production line with an annual output of 12000 tons is expected to enter the trial operation phase in mid-1919, and the second phase of the project is expected to be completed by the end of 19th. According to the plan, it will contribute about 410 million yuan in sales income and 81.5 million yuan in net profit every year after reaching production.
Profit forecast and valuation
We estimate that the company's operating income in 2019, 2020 and 2021 is 2.791 billion yuan, 3.092 billion yuan and 3.393 billion yuan respectively, with a growth rate of 13.12%, 10.80% and 9.71% respectively, and the net profit of shareholders belonging to the parent company is 86.22 million yuan, 146 million yuan and 194 million yuan respectively. the growth rates were 196.49%, 69.34% and 32.91%, respectively. Fully diluted EPS per share is 0.14,0.24 and 0.32 yuan respectively, corresponding to 35.7,21.1 and 15.9 times PE, covering for the first time and given a "prudent overweight" rating within the next six months.
Risk hint
Polyether customer expansion is not as expected; propylene oxide project start-up rate is lower than expected; DCP project construction process is not expected; safety or environmental accidents; systemic risks.