Zhejiang Huasheng Technology Co.Ltd(605180) (605180)
Zhejiang Huasheng Technology Co.Ltd(605180) is a manufacturer of high-quality water supplies materials. Founded in 1996, the company focuses on the R & D and production of composite materials, and successively introduces flexible materials (light box advertising materials, canopy materials) and air tight materials (inflatable yacht materials, wire drawing air cushion materials). Air tight materials are mainly used for water inflatable products. At present, they are the core category of the company, growing rapidly, driving the company’s revenue and profit to show an upward trend. In 2020, the revenue accounted for 80%, of which wire drawing air cushion materials accounted for 58%. The technical barrier of wire drawing air cushion material is high, and the company has mastered all production processes. The gross profit margin of wire drawing air cushion materials remained above 50%, and the increase in the proportion drove the overall gross profit margin to continue to rise, which basically maintained the overall gross profit margin of the company at more than 40% in recent three years. Wire drawing air cushion material is also the main development category of the company in the future.
The company’s technology is leading, and the competition pattern of wire drawing air cushion materials is concentrated. The weaving, sizing and bonding of wire drawing base cloth is the core process of the production of wire drawing air cushion materials, which requires a number of professional technologies such as loom modification and supporting software design, and generally requires manufacturers to have long-term R & D and accumulation. At present, the company has achieved a breakthrough in all production processes. Wire drawing air cushion materials are gradually replaced by domestic products after 2012, but there is still room for replacement. At present, there are mainly three Chinese participants, which have basically divided the Chinese market, and the output gap between them is small. From the production capacity expansion of wire drawing air cushion materials, the company is most focused on the subdivided fields. We think the company can fully enjoy the development of the industry.
Airtight materials are mainly used for aquatic sporting goods, with a broad market and high prosperity of the industry; It is expected to expand the scope of application in the future. Zhejiang Huasheng Technology Co.Ltd(605180) air tight materials are mainly used for water inflatable outdoor products, of which 70-80% of wire drawing air cushion materials are used for the production of water skiing board and yoga mat. The development of the company’s business is closely related to the international and Chinese outdoor sports demand, especially the development of water sports. The global market scale of water leisure products is about 46 billion US dollars, accounting for about 18% of the global outdoor leisure products industry. The growth rate of water sports in recent years is faster than that of the whole outdoor leisure products market. Among them, the aquatic inflatable leisure products market accounts for 7.5% of the whole aquatic leisure products market, the market scale is about US $3.5 billion, and the growth rate remains above 10%. In addition to aquatic sporting goods, wire drawing air cushion materials have a wide range of potential applications, including protection, medical, rescue and other fields. The application of air tight materials is customized, and Zhejiang Huasheng Technology Co.Ltd(605180) is expected to continue to occupy the market by relying on forward-looking application research.
The company’s fund-raising projects will solve the capacity bottleneck, and the product price recovery can be expected when the downstream is better. The company’s capacity utilization rate has remained at a high level in recent two years. In 2020, the capacity utilization rate of wire drawing base cloth will reach 104%. The company’s fund-raising project will build 4.5 million square meters of wire drawing base cloth. In the future, the company’s capacity of wire drawing air cushion materials will be expanded to 2.4 times of the current capacity. In addition to the release of production capacity, the company’s product prices fluctuated under the influence of raw material prices in the past. The boom of terminal demand and the recovery of raw material prices will drive the recovery and stabilization of main product prices and boost revenue growth.
Profit forecast and investment suggestions: the company focuses on and ploughs deeply in the field of wire drawing air cushion and keeps moving forward. Under the background of the prosperity of the downstream of wire drawing air cushion and the promotion of its application scope, the company continues to enjoy the development of the industry through the expansion of production capacity. It is estimated that the company will realize operating revenue of RMB 658 million, RMB 822 million and RMB 1019 million from 2021 to 2023, and the net profit is expected to be RMB 198 million, RMB 264 million and RMB 328 million respectively. The PE level corresponding to the company’s current net profit forecast is 17.7, 13.28 and 10.66 times. We believe that the company can enjoy a certain valuation premium by virtue of its technical advantages. For the first coverage of the company, give a “recommended” rating.
Risk warning: the price of raw materials fluctuates violently; The company’s new production capacity construction is less than expected; The progress of new product development is less than expected.
