\u3000\u3 Bohai Water Industry Co.Ltd(000605) 099 Cocreation Grass Co Ltd(605099) )
Key investment points
The artificial lawn industry is the leader, with the largest production and marketing scale in the world for nine consecutive years. The company is mainly engaged in the R & D, production and sales of artificial turf. By 2020, the production capacity has exceeded 90 million square meters. The products are exported to 120 countries and regions around the world, with a laying area of more than 300 million square meters. The company’s strong technical strength, good supply capacity and excellent product quality have been highly recognized by the market. According to amiconsulting, the production and sales scale of the company has ranked first in the world for nine consecutive years since 2011, with a market share of 15% in terms of sales in 2019. From 2016 to 2020, the company’s revenue CAGR was 14.25%, and the revenue of overseas leisure grass accounted for 69% in 2020, contributing the most important revenue increment.
The industry has a broad space, and the substitution demand for natural grass promotes the continuous improvement of the penetration rate of artificial grass. According to amiconsulting, the global sales scale of artificial turf in 2019 was nearly 18 billion yuan, of which the sales of sports grass / leisure grass were 160 million square meters and 137 million square meters respectively. The high-performance and low-cost attributes of artificial turf increased its demand for natural grass substitution. The CAGR of sports grass / leisure grass sales in 20192023 were 8.16% / 14.93% respectively. We expect the market scale of artificial turf to be nearly 30 billion yuan in 2023. The growth of sports grass comes from the sports investment in the Chinese market and the renewal of the stock in the overseas market. China’s policy Dongfeng is favorable for the continuous expansion of the sports grass market. We expect that the penetration rate of sports grass in Chinese football venues will increase to 27% in 2023, and the market scale will exceed 1 billion yuan. The growth of leisure grass comes from the upgrading of overseas consumption and the expansion of diversified application scenarios. We predict that the scale of global leisure grass will exceed 26 billion yuan in 2023, and the penetration rate will increase to 8%. In terms of competition pattern, qualification certification forms an industry entry barrier, and the market share continues to focus on the head. In 2019, 11% of global enterprises contributed 85% of production, and the industry sales volume Cr5 increased from 34% to 37% in 20172019.
R & D, qualification and channel barriers are difficult to exceed, and the leading position of the company is stable. 1) The R & D strength is far ahead. Dr. Zhao Chungui, an expert in materials science of the Institute of chemistry of the Chinese Academy of Sciences, endorsed the company’s R & D strength. The forward-looking layout at the process and technical levels made the company have the customization and mass production capacity to meet the diversified needs of customers. More than 200 new products were launched in 2020; 2) International authoritative qualification certification. The company is the only company in the Asia Pacific region that has the qualifications of FIFA (8 global), worldrugby (8 global) and FIH (11 global) preferred suppliers at the same time. The scarcity and stability of qualification certification lay the foundation for the expansion of the company’s high-end sports grass products; 3) Downstream channels are high-quality and stable. The top customers in Europe and America are highly dependent on the company’s high-quality product supply. In 2019, the amount of customers’ purchases from the company accounted for the highest proportion of customers’ revenue, and the company’s production capacity continued to climb to ensure the delivery capacity. The production capacity scale is expected to exceed 150 million square meters in 2023.
Profit forecast and investment rating: the artificial lawn industry has a broad space, and the company’s core competitive advantages in R & D, qualification and channels are stable. It is expected to realize three times the scale expansion through the pavement business in the future. We expect the company’s revenue to be RMB 2.420/3.206/3.869 billion from 2021 to 2023 respectively, corresponding to PE of 26 / 18 / 14x. The comparable company valuation method is used to give the company 25 times PE in 2022, corresponding to the target price of 38 yuan, and the “buy” rating is given for the first time.
Risk tips: the exchange rate and raw material prices fluctuate sharply, the downstream demand growth is less than expected, and the resumption of production and work in Vietnam is less than expected.
