Main points of investment:
For the first time, it covers the rating of "overweight", with a target price of 11.2 yuan. Affected by the relocation, 200000 tons of PVC paste resin is expected to contribute to profits in the second quarter, benefiting from the recent 20% increase in product prices and sustainable; crude oil prices have rebounded sharply, the company's refining and chemical business has improved significantly, and profits are expected to break even in the first quarter of 2016 from a loss of 100 million yuan in 2015; Blue Star Dongda's polyether polyols are highly over-committed and product prices are still rising. We believe that these three points are ignored by the market and there is a huge expectation gap. We estimate that the company's EPS from 2016 to 2018 will be 0.63 yuan, 0.47 yuan and 0.56 yuan respectively, with a target price of 11.2 yuan for the first time.
The supply and demand pattern of PVC paste resin is improved, and the price is expected to rise further. Domestic PVC paste resin production capacity accounts for about 30%, the actual effective supply is less than 1 million tons, supply and demand is tight. The rise in the price of crude oil has pushed up the cost of ethylene enterprises. The price of products has recently increased by 20%, and is expected to rise further in the future. The company currently has a production capacity of 200,000 tons per year, and is expected to have an operating rate of 50% for the whole year affected by the relocation. It is expected that the production capacity will be fully released in 2017, which will greatly improve the company's performance level.
It is expected that the refining and chemical business will turn around, and the profit of polyether polyol will exceed the performance commitment. The refining and chemical business lost about 100 million yuan in 2015, and the price of crude oil rose from $30 to $40 per barrel.
Blue Star Dongda, injected by major shareholders, is the leader of polyether polyols in China, with a profit of 100 million yuan in 2015 exceeding the performance commitment, and product prices are still rising, it is expected that there is still much room for marginal improvement.
The company is one of the potential targets for the reform of state-owned enterprises of Sinochem. The company is a listed company under Sinochem, and the injection of Blue Star Dongda in 2015 significantly improved the company's profitability, thus it can be seen that ChemChina regards the company as an important capital operation platform for promoting the reform of state-owned enterprises.
Risk tips: PVC paste resin prices fell, crude oil prices fell.