The company is a new materials enterprise that stands out in geotechnical refining. The company was founded in 2010 and is headquartered in Dongying, Shandong. The parent company, Lihuayi Group, is a well-known local refinery with diversified operations led by petrochemicals. It is one of the top 500 Chinese enterprises and the top 500 Chinese petroleum and chemical companies. Weiyuan Co., Ltd. is the only listing platform under the parent company. The actual controller of the company is the company's management.
The company has a perfect polycarbonate industry chain layout and is a benchmark enterprise in the domestic PC industry. At the beginning of the establishment of the company, the development track was focused on the polycarbonate industry chain. The company has been deeply involved in the layout of the polycarbonate industry chain for more than ten years. Through technical cooperation with US KBR, US Badger, Japan Asahi Kasei, and Japan Ube Industries, etc., we have vigorously introduced advanced process technology. The company has successively invested in the construction of 350,000 tons/year phenolone phase I, 120,000 tons of BPA phase I, and 130,000 tons of PC production capacity. It is one of the earliest, most complete and competitive enterprises in the domestic phenolone-PC industry chain.
The polycarbonate industry chain completed the secondary expansion of production and expanded to the three carbon industry chains. Beginning in 2018, the company carried out secondary production capacity construction, successively invested 350,000 tons/year phenolone phase II, 120,000 tons/year BPA phase II, expanded PC production capacity to 200,000 tons, and was also equipped with 100,000 tons/year DMC. Self-sufficiency of key raw materials in the production process was further improved, and the PC industry chain was further developed and expanded. At the same time, the company expanded its industrial chain to propylene, built new projects such as 600,000 tons/year of propane dehydrogenation - 300,000 tons/year of propane oxide - 250,000 tons/year of electrolyte solvent, etc., and the company's business structure changed to go hand in hand. The company's new production capacity will be concentrated and put into operation from the second half of 2023 to the beginning of 2024. After production is put into operation, the company's product line will be further enriched, the industrial chain support will be further improved, and its overall competitiveness will be further enhanced.
Prices of the main products are low, and recent signs of a steady rebound in prices are gradually showing. In the first half of 2023, the company's industry was at a low level of prosperity. Prices and price differences of the company's main products, such as phenol, acetone, BPA, and PC, were low, and the company's profit fell to a low point since listing. Over the past month, prices of related products have gradually stabilized and rebounded, downstream demand has recovered, the current supply and demand pattern is expected to be repaired, and the company's performance is also expected to recover.
Investment suggestions: The company is a benchmark enterprise in the domestic polycarbonate industry chain. It is about to complete the secondary expansion of the polycarbonate industry chain and the construction of the C3 industry chain. Prices of the company's main products were low in the first half of the year, and recently they have gradually shown signs of a rebound. We expect the company's net profit to be 275, 7.87, and 1,037 million yuan respectively in 2023-2025. The corresponding EPS will be 0.50 yuan, 1.43 yuan, and 1.89 yuan respectively. The corresponding PE at the current price (August 23, 2023) will be 38 times, 13 times, and 10 times, respectively. We are optimistic about the company's future growth, covered it for the first time, and gave it a “recommended” rating.
Risk warning: 1) the risk of product prices falling; 2) the risk that project construction progress falls short of expectations.