\u3000\u3 Guocheng Mining Co.Ltd(000688) 087 Shandong Intco Recycling Resources Co.Ltd(688087) )
Key investment points
Event: the company plans to invest in the construction of 100000 t / a multi category plastic bottle high-quality regeneration project.
It is planned to invest in 100000 t / a multi category recycled plastic project to open up growth space through resource coordination and category expansion. 1) Project investment: 800 million yuan, including 778 million yuan of construction investment (Civil Engineering and equipment) and 22 million yuan of working capital. The source of funds is self owned funds or other self raised funds. 2) Project location: the project is located in Malaysia, and the main body of implementation is Yingke company of Malaysia. 3) Construction period: 3 years. 4) Project content: the plastic categories involved include PET / PP / PE, in which pet plans to purchase 2 cleaning lines (including miscellaneous bottle auxiliary lines), 1 regeneration and tackifying granulation line and 4 sheet processing lines; PP / PE plans to purchase 1 cleaning line and 2 regeneration granulation lines, and the rest include 10 thermoforming machines, environmental protection equipment, air compressors, cooling towers, forklifts, etc. A land purchase agreement has been signed for the land required for the project. The implementation of this project highlights the company’s strategic plan to expand from PS / pet to PP / PE and other multi category plastics. The incoming material acquisition of PP / PE has strong synergistic benefits with PS / PET, which helps to improve the company’s layout in the field of recycled plastics, expand the business scope, improve the scale effect and profitability, and open up the future growth space.
Overseas projects are constructed in an orderly manner, and we look forward to the expansion of pet market and the release of back-end deep processing capacity. The company’s overseas pet and Vietnam deep-processing projects have been promoted in an orderly manner. 1) the “50000 T / a PET recycling project” has been gradually debugged as planned, and relevant products have begun to send samples, third-party testing and certification; 2) The infrastructure construction of Vietnam Yingke’s “plastic decorative frame and wire rod project with an annual output of 2.27 million boxes” has been steadily promoted. 3) The company plans to spend 200 million yuan to purchase the subsequent new capacity of Malaysian land reserve. As of March, the company has signed a land sales agreement with the seller. 4) The company plans to invest in the construction of a project with an annual output of 1 million pieces of high-end iron products in China. The project is expected to start in May and be constructed and put into operation in October. After the overseas and Chinese projects are put into operation, it will help the company expand the new product market, seize the first mover advantage and further expand the profit scale.
Plastic restriction order carbon neutralization opens the blue ocean market of waste plastics recycling, and the minimum content of recycled materials accounts for the demand. 1) In 2019, the global recycling rate of waste plastics is about 35%, with great room for improvement. 2) The abolition ban drives the reform of the global supply chain and transfers to the Southeast Asian market. 3) The carbon of recycled plastics is reduced by 30% ~ 80% compared with that of primary plastics. 4) The minimum content standard of recycled PET ensures the rigid demand. California of the United States stipulates that the content of recycled plastics in PET bottles will be 15% from 2022. The European Union specifies that the proportion of recycled plastics in PET containers will not be less than 25% by 2025 and 30% by 2030. Major enterprises make voluntary commitments.
The company’s whole industrial chain linkage & layout at home and abroad, technical advantages, cost reduction and efficiency increase, new production capacity put into operation & utilization improvement can be expected. 1) Recycling end: in 2020, the outlets will cover more than 400 in the world, and the cost advantage of overseas plastic recycling is about 20% ~ 60%. Self developed recycling equipment cooperates to establish recycling channels. 2) Regeneration end: the purity of regenerated PS particles is 99%, which can replace some new materials, and the price is 20-50% lower than that of new materials. 3) Utilization end: the profit margin of finished products is more than double that of recycled particles to more than 30%. 4) Recycling equipment, Vietnam recycled products and PET production expansion are about to increase their performance.
Profit forecast and investment rating: the company is a pioneer in recycled plastics, and the project expansion is expected to contribute to the growth. We maintain the company’s net profit attributable to the parent company of RMB 251 / 390 / 590 million from 2021 to 2023, corresponding to 29 / 19 / 12 times PE, and maintain the “buy” rating.
Risk warning: the project is not put into operation as expected, and there are risks of trade policy changes and tariff increases.
