Main points of investment

Peace viewpoint:

Backed by Nanjing SASAC, mainly engaged in viscose fiber. Nanjing SASAC holds 41.45% of the company's shares through Nanjing Xingong Investment Group and its corresponding subsidiaries. The company is mainly engaged in the production and management of viscose fiber and tap water. At present, it has a production and supply capacity of 100000 tons of viscose staple filament, 20 000 tons of viscose filament and 150000 tons of tap water per day. In addition, the company also cooperates with Austrian Lanjing Group to set up Lanjing (Nanjing) Fiber Co., Ltd., which is equivalent to 48000 tons of viscose staple fiber equity production capacity (160000 tons equity). The company has been engaged in viscose fiber production and management for more than 50 years, has rich experience and is in the forefront of the industry in terms of comprehensive strength.

The price of viscose staple fiber rebounded, which is good for the development of the company. The supply and demand pattern of viscose staple fiber has been improved: 1) on the supply side: low prices in recent years have led to a flat supply of viscose staple fiber, and superimposed environmental protection policies have strictly restrained the supply of viscose staple fiber production capacity; 2) the growth rate of domestic demand for viscose staple fiber has been maintained at about 5% a year. The recovery of foreign demand and the depreciation of RMB have promoted the rapid growth of exports, and the export of viscose staple fiber increased by 43.58% in 2016. In addition, viscose staple fiber has a substitution effect on cotton, and the upward price of cotton pushes up the demand for viscose staple fiber. 3) the market price of viscose staple fiber hit bottom in 2015, and then fluctuated all the way upward. recently, the price of viscose staple fiber has been slightly adjusted, but from the analysis of the supply and demand side, it generally takes a year for the supply side to build the production line and put into production. Production capacity cannot be increased quickly in the short term, so prices are expected to maintain a rebound trend.

It is planned to increase production capacity and enhance the competitiveness of the industry. From the production capacity data of listed companies in the industry, there is a certain gap compared with Sanyou Chemical, Sino-Thai Chemical and other industry giants. The company plans to increase by no more than 1.5 billion for the new project of 160000 tons of viscose staple fiber, with a construction period of two years. After all the construction of the project reaches production, the annual additional sales income will be 2.14 billion yuan (no tax) and the after-tax profit will be 180 million yuan. At present, the fixed increase project has been accepted by the CSRC.

Committed to the development of the second main business, new materials, environmental protection as the focus. In order to resist the risk of periodic fluctuations of viscose fiber, the company is committed to the development of the second main business. The 2016 annual report proposed that "based on the main industry of viscose fiber, the main industry should be further strengthened, and based on the main industry to achieve strategic transformation; increase the intensity of capital operation and quickly open up new industries by means of targeted additional issuance." by 2020, the output value of the new industry will produce 50% of Prida. With regard to the development scope of the second main business, the company will actively expand new materials, environmental protection and other new industries, through mergers and acquisitions, asset injection and other ways to promote the company's further transformation and upgrading, the future capital operation of the company is worthy of attention.

The reform of the company's state-owned enterprises is worth looking forward to. This year, Nanjing SASAC focused on promoting the reform of mixed ownership and diversification of state-owned enterprises, and vigorously promoted the asset restructuring and listing financing of state-owned enterprises. The reform of the company's state-owned enterprises is worth looking forward to, and there may be a breakthrough in the equity diversification of actual controllers, as well as the company's employee incentive system.

Profit forecasts and investment advice. Assuming that the price of viscose staple fiber from 2017 to 2019 (excluding tax) is 14000 yuan / ton, 14000 yuan / ton and 13700 yuan / ton, the company's operating income from 2017 to 2019 is 1.967 billion yuan, 2.123 billion yuan and 2.795 billion yuan respectively, and the net profit belonging to shareholders of the listed company is 189 million yuan, 260 million yuan and 379 million yuan respectively. The current stock price corresponds to 17.8 times, 13.0 times and 8.9 times of PE. The valuation is low. We believe that the company's highlights include: 1, the supply and demand pattern of viscose staple fiber continues to improve, and the price is expected to continue to rebound; 2, the Dingzeng viscose staple fiber project, which will add 160000 tons of production capacity in the next two years, significantly enhance the competitiveness of the company; 3, strive to expand the second main business, there are expectations of asset injection in the future; 4, under the background of state-owned enterprise reform, there may be a breakthrough in the equity diversification of actual controllers and employee incentive system. Coverage for the first time, giving a "recommended" investment rating.

Risk tips: viscose staple fiber price decline risk, will increase the risk of failure.