Laike Chemical is the world's leading manufacturer of fine chemicals and the world's leading market share of its core products. The company's operating history can be traced back to 1997 and now has 1500 employees. Headquartered in Beijing, the company has four business sectors: dye and agrochemical intermediates, pigment intermediates, battery materials and environmental protection technical consulting services, and has production bases in Cangzhou, Hebei and Dongying, Shandong.
Summary of the report
The rise in the price of DSD acid led to the outbreak of the company's performance. DSD acid is the main product of the dye intermediate plate of the company, which is mainly used in the production of fluorescent brightener (OBA) needed by the paper industry or washing industry. Frost & Sullivan predicts that global consumption of DSD acid will grow by 3.3% a year and will reach 66000 tons by 2020E. The company is the global leader in DSD acid, with a production capacity of 35000 tons and a market share of 53%, with another 20, 000 tons under construction. Lianyungang, the world's second largest DSD acid producer, stopped production due to environmental protection problems in April 2018. With the explosion of Xianshui in March 2019, the possibility of Laiya resuming production continues to decrease, leading to a continuous rise in the price of DSD acid. We estimate that from 2019 to 2020, the average sales price of DSD acid will reach 100,000 yuan / ton and 90,000 yuan / ton respectively, the income of dye intermediates will reach 2.163 billion yuan and 2.708 billion yuan respectively, and the gross profit margin will be 80.4% and 79.0% respectively.
The business of pigment intermediates has grown steadily. The main products of the company's pigment intermediate business include DMSS, DMAS, DATA and so on, which are mainly used in the production of automotive coatings, high-end architectural coatings, artificial food pigments and so on. According to Frost & Sullivan, global consumption of DMSS and DMAS is expected to grow at a compound growth rate of 11.9% and 3.9% respectively by 2020. The company currently has a production capacity of 4500 tons of DMSS, 4500 tons of DMAS and 2000 tons of DATA. It is the largest DMSS producer in the world and the second largest DMAS producer in the world. With the steady growth of the pigment intermediates market, we expect the company's pigment intermediates business revenue to grow steadily in the future, while the proportion of DATA sales with high gross margin will continue to increase, and the gross profit margin will also continue to increase.
Battery materials bring new long-term growth points. Under the strong promotion of the government, the domestic new energy vehicle industry continues to develop rapidly, which greatly stimulates the demand for battery materials. The company has built a 15000-ton production line of iron phosphate, the precursor of lithium battery cathode material, in Cangzhou, Hebei Province, with advanced production technology and has achieved small batch production. The company also has a production line of 2000 tons of carbon nanotube conductive paste and jointly developed ternary material precursor products in Tsinghua University. We believe that the business has good growth potential in the future.
The first "buy" rating, with a target price of HK $5.20. We believe that due to the good industry structure and the lack of new capacity, the price rise of DSD is sustainable, leading to the outbreak of the company's short-term performance. At the same time, the company maintains a dividend yield of 30%, which will reach 12.5% in 2019, which is extremely attractive. In addition, the battery materials business will bring new long-term growth points for the company. With a "buy" rating for the first time, the target price is HK $5.20, which is 67% higher than the current price. Our target prices are 4.0x and 3.3x for 2019E and 2020E P _ scale E, respectively.
Risk tips: DSD acid prices fall; environmental factors lead to production restrictions; battery materials business development is not as expected.