The company published its 2020 annual report and 2021 quarterly report. In 2020, the company achieved net profit of 125 million yuan after deducting non-return to the mother (+30% compared to the previous year), of which the 20Q4 achieved net profit of 57 million yuan (+65% year-on-year, +206% month-on-month). The increase in performance was mainly due to the commissioning of PO devices. In 21Q1, the company achieved net profit of 27 million yuan (-7% YoY, -61% YoY), which was slightly lower than expected due to PO device process optimization and PO price fluctuations.
Downstream demand is strong, and PO industry chain prices rose sharply in the second half of 2020. The epidemic has changed consumption habits, and global orders have moved domestically. In 2020, the production of refrigerators and freezers in China increased dramatically, and the production of household refrigerators and freezers increased 14% and 40% respectively over the same period last year. Driven by this, polyether and PO prices rose sharply in the second half of 2020. In 2020, the company sold 128,200 tons of hard foam polyether (a record high) and 840 thousand tons of isopropanolamine.
The PO project was put into operation, the company opened up the entire PO industry chain, and there is still room for process optimization. Taixing Chemical's 100,000 ton PO project adopted a new isopropyl benzene co-oxidation process and was officially put into operation in 20Q4. According to the annual report, Taixing Chemical Q4 produced a total of 22,000 tons of PO (an operating rate of 80%), achieving a net profit of about 70 million yuan. The average price of 20Q4 PO without tax is 15,644 yuan/ton. Based on this calculation, the full cost of the company's PO is about 12,400 yuan/ton. As the process is optimized, there is still room for this cost to drop.
21Q1 performance fell short of expectations, mainly due to PO equipment not operating optimally and polyether business cost pressure. (1) In the early stages of Taixing Chemical's production, there were many process optimizations. The average load in Q1 was 72.9%, which did not achieve optimal operating conditions. Taixing Chemical's Q1 net profit was 50.38 million yuan, lower than expected. (2) The average PO price of the company's hard foam compound polyether last month was the benchmark price, and there was a certain lag in price. Q1 PO prices remained high and rose rapidly in March, while the company still needed to outsource about 30% of POs, and the cost pressure on the polyether business was high. The polyether business lost 2.256 million yuan in Q1.
We forecast the company's net profit of 2.12/2.39/255 million yuan for 2021/22/23, and EPS of 0.35/0.40/0.42 yuan, corresponding to 15.0/13.4/12.5 times the current price of PE. We believe that the two factors that caused the Q1 performance to fall short of expectations are expected to gradually subside: as the operating rate of the Taixing project increases, cost reduction continues to advance, and DCP is put into operation, the overall cost of PO is expected to drop; the company already adjusted the prices of hard foam compound polyether and isopropanolamine products in March, and PO prices in April fell somewhat compared to March highs. The company as a whole will still benefit from the high level of prosperity in the PO industry chain and maintain its “buy” rating.
Risk warning: The operation and cost reduction of PO equipment fell short of expectations, and PO prices fluctuated greatly