Zhejiang Wansheng Co.Ltd(603010) (603010)
Zhejiang Wansheng Co.Ltd(603010) is a global leader in phosphorus flame retardant industry. The company has entered the field of electrolyte additives through investment and holding in Zhongzhou, Fujian, and further expanded the company’s product categories.
Key points supporting rating
The company is a global leader in the phosphorus flame retardant industry. For more than 20 years, the company has deeply cultivated the functional fine chemicals business dominated by phosphorus flame retardants. At present, the company has an engineering plastic flame retardant capacity of 75000 tons, TCPP capacity of 40000 tons, soft foam flame retardant capacity of 10000 tons, amine additives capacity of 25000 tons, catalyst capacity of 10000 tons and coating additives capacity of 40000 tons. The company’s operating revenue increased from 1.227 billion yuan in 2016 to 2.33 billion yuan in 2020, with an average annual compound growth rate of 21.5%; The net profit attributable to the parent company increased from 149 million yuan in 2016 to 393 million yuan in 2020, with an average annual compound growth rate of 35.83%. In 2021, the company’s operating revenue in the first three quarters was 3.068 billion yuan, a year-on-year increase of 97.80%, and the net profit attributable to the parent was 625 million yuan, a year-on-year significant increase of 171.41%.
Many factors promote the growth of demand for BDP flame retardant, and the company accounts for more than 40% of the global BDP production capacity, benefiting most from this round of price increase. EU halogen-free regulations, PC capacity expansion, 5g base station construction, new energy vehicle industry development and other factors jointly promote the growth of BDP flame retardant demand. According to evtank’s prediction, the global sales volume of new energy vehicles will reach 18 million in 2025. It is estimated that the demand for engineering plastic flame retardant in the field of new energy vehicles will be about 100800 tons. Based on comprehensive consideration, we expect BDP to maintain a demand growth of slightly more than 20000 t / A in the next five years. Due to the water accident in 2019, the withdrawal of some production capacity in China and the continuous shutdown of overseas manufacturers in 2020 caused by the epidemic, the global supply of BDP flame retardant fell sharply. In 2021, the price of BDP rose sharply. In October, the price hit 51000 yuan / ton, an increase of 59% over the same period last year. According to the calculation of the company’s theoretical capacity of 65000 tons / year, the EPS of the company will increase by 0.114 yuan for every 1000 yuan / ton increase in the price of BDP flame retardant.
Invest in Zhongzhou, Fujian, layout the field of new energy materials and expand the future profit growth point. The company invests in Zhongzhou, Fujian, and plans to build a new “Sanming lithium ion electrolyte additives and new conductive materials project”, with an annual output of 15 kinds of lithium ion electrolyte additives and new conductive materials, totaling 95500 tons. Among them, the capacity of phase I is 20500 tons. Affected by the high prosperity of the downstream new energy vehicle industry and the increase in the proportion of lithium iron phosphate batteries, the demand for VC and FEC has increased significantly. It is expected that the supply and demand of VC and FEC will maintain a tight balance in the later stage. After the company releases its capacity, it is expected to continue to contribute to the performance increment in the future.
Profit forecast and valuation
Based on the expectation of Shandong Wansheng’s “integrated production project with an annual output of 319300 tons of functional new materials”, Fujian Zhongzhou’s “Sanming lithium ion electrolyte additive and conductive new material project” and the long-term supply shortage of BDP flame retardant, the dilution of share capital caused by the additional issuance is not considered temporarily. It is estimated that the earnings per share of the company in 2021-2023 will be RMB 1.79, RMB 2.07 and RMB 2.37 respectively, The corresponding PE is 14.6 times, 12.6 times and 11.1 times respectively, and the buy rating is given for the first coverage.
Main risks of rating
Risk that the planned production capacity release schedule of other manufacturers of BDP flame retardant exceeds the expectation; Risk of delay due to obstruction of EIA of Fujian Zhongzhou project; Risk of product sales price fluctuation; Safety production management risk; Risk of epidemic impact.
