\u3000\u3 Jointo Energy Investment Co.Ltd.Hebei(000600) 618 Shanghai Chlor-Alkali Chemical Co.Ltd(600618) )
Focusing on chlor alkali products, the performance ushered in a reversal. In 2021, the company’s existing product capacity: 720000 tons / year of caustic soda, 720000 tons / year of dichloroethane, Shanghai Pudong Development Bank Co.Ltd(600000) tons / year of liquid chlorine, 90000 tons / year of special PVC resin and 200000 tons / year of vinyl chloride. After deep cultivation for Shanghai Chlor-Alkali Chemical Co.Ltd(600618) years, the industrial chain of the company has extended from traditional chlor alkali products to downstream PVC resin, MDI, etc. In 2021, the company realized a net profit attributable to the parent company of 1.77 billion yuan, with a year-on-year increase of 192%, and the performance reversal reached a new high in recent five years.
The supply and demand of caustic soda is tight, and the price is expected to rise. In terms of capacity, affected by the supply side reform and dual control of energy consumption, the new capacity of caustic soda in China will be limited in the next 1-2 years. In 2021, China’s caustic soda originally planned to add 1.11 million tons of capacity, but actually added 350000 tons, only 31.53%. In terms of demand, the downstream alumina production capacity increased rapidly, driving the growth of caustic soda demand. At the same time, the price difference between downstream electrolytic aluminum and alumina is increasing, and there is still room for the upward price of alumina. The prices of caustic soda and alumina are highly synchronized. Therefore, with the rising price of electrolytic aluminum, the price of caustic soda is also expected to rise. In terms of inventory, as of April 8, 2022, the inventory of flake alkali plant was 22600 tons, a decrease of 93.4% compared with the same period in 2020, at a historically low level. Lower inventories supported higher prices. As of April 13, 2022, the average market prices of liquid caustic soda and solid caustic soda in China have been reported at 1296 yuan / ton and 4074 yuan / ton respectively, with a year-on-year increase of 88.0% and 131.5% respectively, both of which are in the upward channel.
The production capacity of dichloroethane is stable and the price center moves upward. China’s dichloroethane production capacity is stable and the industry concentration is high. Among the three major manufacturers at present, the company’s production capacity accounts for 44.4%, ranking first. Since 2020, the price of dichloroethane in China has risen sharply and the center has moved up. As of April 13, 2022, the price of dichloroethane in China remained high, with a year-on-year increase of about 111.7%.
With the continuous launch of new production capacity, the profitability is expected to be further improved. In 2021, the company’s 200000 tons of vinyl chloride and 60000 tons of special PVC transformation projects were successfully put into operation. In 2022, the company will add 300000 tons / year of caustic soda and 400000 tons / year of PVC in Qinzhou, Guangxi. It is expected to be put into operation before the end of the year. The commissioning of new projects in the future will open up room for performance growth for the company, and the profitability of the company is expected to be further improved.
Investment advice
Combined with the company’s new capacity projects under construction and the prosperity of its main business industries, it is expected that the company’s operating revenue will be RMB 7.570/10.276/11.679 billion in 2022, 2023 and 2024 respectively, the net profit attributable to the parent company will be RMB 2.047/30.39/3.519 billion respectively, and the corresponding EPS of the net profit attributable to the parent company will be RMB 1.77/2.63/3.04 respectively. Based on the closing price on April 13, 2022, the corresponding PE is expected to be 7.64/5.15/4.45 times respectively. We are optimistic about the development prospect of the company, covering it for the first time and giving it a “strongly recommended” rating.
Risk tips
The price of caustic soda fluctuates abnormally, the epidemic situation in China repeats, and the company’s projects are blocked from reaching production capacity.
