A leading manufacturer of special inks and special coatings in China. The company is a leading PCB ink company in China, and its products are widely used in printed circuit boards, precision processing of electronic products, LED lighting and other fields. In 2017, the company acquired Jiangsu Hongtai and entered the field of light-curing coatings. In 2018, Jiangsu Hongtai acquired Hunan Sunshine and continued to strengthen the layout of new UV materials. At the same time, the company acquired Hangsheng Energy to enter the lithium-ion battery electrolyte field, and commissioned Taiwan Guangzhi to cooperate in developing photoresist projects to inject new impetus into the company's long-term development;
Localization of PCB ink has ushered in opportunities, and fund-raising capacity is about to be released. The company is one of the earliest enterprises engaged in the electronic photosensitive chemical materials business in China. The company's PCB photosensitive ink products include solder resistance ink, line ink, character ink and other inks. Application fields include single panel, double panel, multi-layer board, and 5G communication boards, etc., which can cover the vast majority of PCB companies' needs. At present, the construction of the company's 8,000-ton ink project has been completed. The production line has entered the trial production and commissioning stage, and production capacity is about to be released. After the company's new production capacity is released, it will greatly ease production capacity bottlenecks and provide a foundation for the company to develop new customers;
The paint business is developing rapidly, and there is huge room for growth. The subsidiary Jiangsu Hongtai is mainly engaged in the development and production of UV-curing coatings. Product applications cover consumer electronics, automotive components and other fields. The company's mobile phone paint customers include first-tier brand manufacturers such as Huawei and OPPO. The rapid growth of Chinese mobile phone brands has provided a good opportunity for Jiangsu Hongtai's development. As the company's technical capabilities and service levels improve, the company's market share is expected to continue to increase. In addition, the company is promoting automotive paint, and there is huge room for domestic substitution. The company's automotive lamp paint products have been certified by AMECA authorities, and we continue to be optimistic about the development of Jiangsu Hongtai's business;
Lay out the photoresist business to help long-term growth. The company signed a “Technical Entrustment Development Contract” with Taiwan Guangzhi to develop “UV orthogonal photoresists for printed circuit boards, flexible substrates, etc.” technology projects. China's semiconductor materials industry is relatively weak. Especially in the field of photoresist, middle and high-end products are still monopolized by foreign manufacturers. The company has been in the PCB ink field for a long time, and the customer advantage is obvious. The company uses high-quality external R&D resources to effectively expand the product line and inject new impetus into the company's long-term development;
Investment advice: First coverage, giving an “increase in holdings” rating. We expect the company's revenue for 2019-2021 to be 861, 1,152, 1,486 million yuan, net profit of 109, 146 million yuan, 193 million yuan, corresponding EPS of 0.56, 0.76, 1.00 yuan, and the corresponding price-earnings ratio for 2019-2021 is 32, 24, 18 times. Comparable companies' average PE in 2020 was 24.54 times. Considering the company's growth in the next two years, we believe that the company's reasonable valuation level corresponds to 25-30 times 2020, corresponding target price of 18.93-22.71 yuan, covering the “increase in holdings” rating for the first time.
Risk warning: Risk of large fluctuations in raw materials; production capacity release of fund-raising projects falls short of expectations; demand from downstream customers falls short of expectations.