The company is the leader of the domestic IXPE industry, raising investment and expanding production projects and overseas subsidiary production projects will help the company to rapidly expand its production capacity and meet the needs of downstream customers. The company attaches importance to R & D, adhere to the market demand-oriented R & D concept, and actively expand the application of IXPE in the field of green and healthy living. At the same time of scale expansion, the company has controlled lower period rates, sales rates and management rates are lower than comparable companies in the same industry. Give the company 30 times PE in 2021, with a target price of 63 yuan per share, and give a "buy" rating for the first time.
The domestic IXPE industry leader, the downstream prospect is broad. Runyang Technology is a leading enterprise in the research and development, production and sale of electronic irradiation cross-linked polyethylene products in China. Downstream is widely used in building materials, car interior decoration, baby products, sporting goods and other fields. PVC plastic flooring is gradually replacing traditional floor decoration materials in the main downstream application areas. Import demand in Europe and the United States maintains an annual growth rate of about 20%. HJ Research expects the domestic market to grow rapidly at a growth rate of about 7%, leading to the expansion of IXPE demand.
Fund-raising projects to further expand production capacity, is expected to promote sustained profit growth. The capacity utilization rate of the company is relatively high, and the capacity utilization rate has been more than 100% in the past three years, and the products are in short supply. In order to meet the needs of downstream customers, the company has built a new IXPE production expansion project with an annual output of 100 million square meters and an IXPE automation technical renovation project with an annual increase of 16 million square meters. We expect to put into production this year and next year. At the same time, the company will increase capital to its Vietnamese subsidiaries, expand Vietnam's production capacity and open up overseas markets. We expect the company to reach a total production capacity of 2.8-320 million square meters in 2024.
Benefiting from the rapid growth of downstream customers, the expansion of the company's production capacity will become an important driving factor for the company's operating income and profit growth.
The technical level is leading in the industry, and the research project aims at new areas in the future. The company has 83 patented technologies, and the self-designed and customized RY-2400 high-speed foaming furnace has increased its running speed to about three times that of the general foaming furnace on the market, which has reached the advanced level in the world. The products produced by the company have excellent performance and stable quality. Intertek, one of the largest consumer goods testing, inspection and certification companies in the world, has passed the tests of formaldehyde, VOC and other harmful substances. The company is studying a large number of projects, aiming at baby goods, sporting goods, medical and health and other fields, constantly expanding the market application of IXPE in the field of green and healthy living.
The net profit increased rapidly, and the rate during the period was lower than that of the same industry. From 2016 to 2019, the company's net profit maintained a trend of rapid growth, from 10 million yuan to 116 million yuan. The company is located in the Yangtze River Delta where PVC floor production enterprises gather, and adopts the sales strategy of focusing on downstream applications to maintain a high customer concentration, so the sales rate is at a low level, which is lower than that of comparable companies in the same industry. The average wage in the area where the company's production and business premises are located is relatively low, and the company's organizational structure is simple, which is conducive to maintaining a low management rate. The lower period rate helps the company to keep the operating net interest rate higher than that of comparable companies in the same industry, which is one of the important reasons for the rapid growth of the company's net profit.
Risk factors: the progress of IXPE replacement is not as expected, the core technical barriers are broken, and the price of raw materials fluctuates greatly.
Investment suggestion: it is estimated that the return net profit of the company in 2020-22 is 1.30,2.10 and 309 million yuan respectively, and the corresponding EPS forecast is 1.30,2.10 and 3.09 yuan respectively. With reference to the valuation of comparable companies and considering the relative high growth of the company, the company is given 30 times PE in 2021, corresponding to the target price of 63 yuan per share, covering for the first time and giving a "buy" rating.
