Event description

Kuncai Technology released its semi-annual report for 2020, with revenue of 330 million yuan in the first half of the year, an increase of 13% over the same period last year, net profit belonging to 70 million yuan, down 17% from the same period last year, and non-net profit down 18% from the same period last year. The revenue in the second quarter alone was 170 million yuan, up 5% from the same period last year; the attributable net profit was 30 million yuan, down 31% from the same period last year, and the non-net profit was down 32% from the same period last year.

Event comment

Sales volume is growing against the trend, and the cost decline is initially reflected. In the first half of the year, the company's revenue increased by 13% compared with the same period last year, of which sales increased by 25% compared with the same period last year. The decline in average price is mainly due to the launch of the low-end brand Moore and the rapid growth of sales. The logic of launching the Moore brand is to rely on the strong cost advantage to seize share under the pressure of industry demand, and the 25% sales growth fully proves the cost-effective advantage. In the first half of the year, the gross profit margin was about 39.8%, down 7.4 pct from the same period last year, mainly due to factors such as the increase in the proportion of low-end product sales and the imposition of tariffs in the United States.

During the period, the expense rate increased slightly, and the net interest rate decreased compared with the same period last year. In the first half of the year, the company's premium rate was 16.6%, up 1.1% from the same period last year, the sales rate decreased by 0.9%, and the management fee increased by 1.1%, mainly due to the increase in managers' salaries, depreciation, intangible assets and expense amortization; the increase in financial rates was mainly due to an increase in interest payments. The final attributable net interest rate was 20.2%, down 7.4 percentage points from the same period last year.

The production progress is smooth, and the first titanium dioxide production line of the world's extraction process will be put into production in October. In the first half of the year, projects under construction totaled 170 million yuan, down 60 million yuan from the same period last year, and fixed assets were 670 million yuan, up 200 million yuan from the same period last year. Judging from the projects under construction and the increment of fixed assets, titanium dioxide and iron oxide projects are progressing in an orderly manner and are expected to be put into production in October this year. The line is expected to improve traditional processes in terms of energy consumption, safety, environmental protection and quality.

The core competitiveness of the company lies in innovation. Years of deep ploughing has enabled the company to establish strong technical barriers. Kuncai Technology is the world's leading pearlescent material industry leader, pearlescent materials belong to the category of inorganic effect pigments. In 2020, the company will officially enter the inorganic pigment market represented by titanium dioxide and iron oxide, from the market segment to the mainstream market, the company has fully opened its growth space, but the core of the spirit of innovation has always been the same. We believe that the company's technical barriers are reflected in two aspects: first, high-end pearlescent materials, with surface treatment technology and synthetic mica technology, break down global high-end market barriers and seize overseas leading market share; second, core raw materials, innovative use of hydrochloric acid extraction, low-cost production of titanium and iron chloride and its oxides, is expected to subvert the global titanium dioxide industry.

Core focus: the company continues to benefit from technological innovation dividends, from the pearlescent material market to the mainstream market of inorganic pigments, there is a lot of room for growth in the future. In the future, the company plans to build an annual output of 500000 tons of high-end titanium dioxide, 500000 tons of high-end iron oxide project, the future growth is worth looking forward to. It is expected that the performance in 2020-2022 will be 2.0,5.3,1.1 billion yuan, corresponding to the valuation of 71,27,13 times, and maintain the buy rating.

Risk hint

1. The competition in the industry tends to be fierce

two。 The production progress of the new project is lower than expected.