Events:

The company announced on the Hong Kong Stock Exchange on October 8 that Shandong Lottery, a subsidiary of the company, intends to invest in a new iron phosphate production line project in Dongying City, Shandong Province, and has obtained a record certificate from the relevant government authorities. The project will be divided into two phases, with a total investment of about 250 million yuan. The overall plan of the project is to increase the production capacity of iron phosphate products by 50,000 tons per year. After the project is put into production, together with the existing production line of iron phosphate products, the total production capacity of iron phosphate products of the company will reach 70,000 tons / year.

The company announced on the Hong Kong Stock Exchange on October 8th that its subsidiary, Shandong Laike New Materials Co., Ltd., intends to invest in the project of building a new production line of 3pyrrolidine-biphenyl tetracarboxylic dianhydride ("BPDA products") in the existing site of Shandong Lottery in Dongying City, Shandong Province, Shandong Province, and is applying for a filing certificate from government agencies. The total investment of the project is about 40 million yuan, and the overall plan is to build a new BPDA product capacity of 500t / year.

Main points of investment:

The recovery of demand leads to a rise in the prices of major products, and the company's performance in the second half of the year is expected to be greatly improved. The company is a world-renowned manufacturer of dye / pigment / pesticide intermediates, and the market share of its main products DSD acid, DMSS and DMAS ranks first in the world. The company launched its iron phosphate and lithium battery additive business in 2017 and currently forms three business segments, including dye and agrochemical intermediates, pigment intermediates and battery materials. In 2020, affected by the epidemic, the company achieved a revenue of 1.275 billion yuan, a decrease of 29.9% over the same period last year, and a net profit of 145 million yuan, a decrease of 72.1% over the same period last year. In the first half of this year, with the relief of the epidemic, the demand for the company's main products, such as DSD acid and pigment intermediates, obviously picked up, and sales increased somewhat. The company achieved revenue of 753 million yuan, an increase of 2.4% over the same period last year, and the company's business basically stabilized. However, due to the lower prices of DSD acid and other products in the first half of the year than in the same period last year, and the technical transformation and suspension of production of the iron phosphate plant, the company's profit still declined significantly, realizing a net profit of 83 million yuan, a decrease of 40.1% compared with the same period last year.

In the second half of the year, due to the rising prices of upstream raw materials and continuous improvement in downstream demand, the price of DSD acid, the company's main product, has risen rapidly. At present, some businessmen on BABA's platform offer 50,000 yuan / ton, much higher than the price of 30,000 yuan / ton at the beginning of July; iron phosphate prices have also risen sharply, according to Baichuan Yingfu data, the latest offer has reached 23000 yuan / ton, up 11000 yuan / ton compared to the beginning of the year. The prices of other intermediate products of the company have also risen to varying degrees. Considering the company's existing production capacity of 35000 tons of DSD acid, 16000 tons of pigment intermediates and 20, 000 tons of iron phosphate, this price increase of major products is expected to significantly improve the company's performance in the second half of the year.

With the addition of iron phosphate business, the company's battery material business is expected to make a new breakthrough the company began to build 15,000 tons / year iron phosphate plant in 2017, and put into production in 2019, and in June 2021, the company further expanded production to 20,000 tons / year through technical transformation. The production capacity is in the forefront of the country and has obvious first-mover advantages. In addition, the company also has 6000 tons / year GBL and 6000 tons / year NMP production capacity, with relatively rich battery material products. At present, with the rise of lithium iron phosphate, the demand for iron phosphate as a precursor is increasing rapidly, with an output of 210600 tons from January to September this year, an increase of 172.17% over the same period last year. Relying on the existing production capacity and technical advantages, the company plans to invest 250 million yuan to build a new 50,000-ton iron phosphate project, of which the first phase of 25000 tons will be completed and put into production by the end of 2022. At that time, by expanding the production scale, the company will further enhance its competitive advantage in the field of iron phosphate, boost the revenue level and profitability of the company's battery material sector, and fully enjoy the rapid development dividend of the new energy industry.

To build a polyimide precursor project, the company will open up the development space company in the field of new materials. The space company plans to build a 500t / a project called biphenyl tetracarboxylic acid dianhydride (BPDA).

BPDA is an important monomer of polyimide materials. Polyimide is widely used in military industry, electronics, lithium electricity and other fields because of its high temperature resistance and good mechanical properties. It is one of the advanced materials supported by the state. At present, the global annual consumption of polyimide is about 100000 tons, and China is about 7000 tons, of which high-end products mainly rely on imports. In the future, with the increasing demand for polyimide materials in China's high-end manufacturing industry, superimposed with domestic substitution, the domestic polyimide market will usher in a stage of rapid development. Relying on the technical advantages in the field of fine chemical products, the company has built polyimide monomer projects in advance, which will open up space for the development of the company in the field of new materials.

Profit forecast and investment rating estimate that the company's annual return net profit in 2021-22-23 is 215 million yuan, 277 million yuan and 294 million yuan respectively, corresponding to 5.8,4.5 and 4.24 times PE, covering and giving a "buy" rating for the first time.

Risk indicates macroeconomic risk; raw material price and supply risk; lower-than-expected demand risk; project construction risk; production safety risk; exchange rate risk; product research and development and application risk.