\u3000\u3000 Nanjing Cosmos Chemical Co.Ltd(300856) (300856)
Sunscreen is a leading raw material manufacturer, and the layout of synthetic perfume market. Founded in 2000, the company focuses on the R & D, production and sales of cosmetic active ingredients and raw materials such as sunscreen and synthetic flavor products. It is a leading supplier of sunscreen raw materials in the world. In 2020, the company’s revenue from active ingredients and raw materials of cosmetics was 650 million yuan, accounting for 65%, including avobenzone, isooctyl p-methoxycinnamate, protofilm powder, octylin, isooctyl salicylate and P-S; The revenue of synthetic spices is 320 million yuan, accounting for 31%, including lily of the valley aldehyde, synthetic anethole, etc. The actual controllers of the company are Zhou Jiujing, Zhou Xuming and his son, who hold 61.5% of the shares of the company. The equity is relatively concentrated. The core employees hold the shares of the company through the employee stock ownership platform, and the employee incentive is in place. In 2020, the company’s revenue and net profit attributable to the parent company were 1.01 billion yuan and 160 million yuan respectively. The compound growth rate in 17-20 years was 12.3% and 55.9% respectively. Affected by the epidemic, the revenue and performance in the first three quarters of 21 years fell by 2.5% and 5.9% respectively.
The global sunscreen market grew steadily, and Asia became an important driving force for the growth of synthetic flavor market. In terms of sunscreen Market: 1) according to Euromonitor data, the global market scale of sunscreen products in 2020 was US $10.8 billion, with a decrease of 9.8% under the impact of the epidemic, and the compound growth rate in 2006-20 was 2.8%, of which the Chinese market showed a high momentum with a compound growth rate of 11.6% in the same period; In the future, the demand for whitening and anti-aging will be deeply rooted in the hearts of the people and will promote the development of the sunscreen market. Compared with the 9.9% penetration rate of sunscreen products in the U.S. market (market scale of sunscreen / skin care products), China is only 5.3%, which can be improved in the future; 2) Nanjing Cosmos Chemical Co.Ltd(300856) in 19 years, the raw materials of sunscreen took the lead in the market with 27.9% share (from the perspective of sales volume), competing with BASF, dezhixin and other leading international comprehensive chemical enterprises. The market for synthetic flavors: 1) according to LEFFINGWELL&ASSOCIATES data, the global flavor and fragrance market in the 21 years is projected to be 29 billion 900 million US dollars, and the 11-17 compound growth rate is 3.2%. 2) European and American manufacturers monopolize the global flavor and fragrance market. According to IAL CONSULTANTS data, the share of the five major manufacturers 61.5% and market concentration were higher 17 years ago. Nanjing Cosmos Chemical Co.Ltd(300856) in terms of subdivided products such as glyoxal and anethole, it directly faces the competition of international manufacturers and has a certain share. It is one of the few spice manufacturers with an income of more than 100 million in China.
Continuous R & D and innovation, strict production standards, in-depth international key customer cooperation and rich product structure to build competitive advantages. We believe that the company has a strong competitive advantage, which helps to continuously stabilize the market segment position and help expand new fields. Specifically, 1) it has a number of independent R & D technologies to achieve high yield, low material consumption and low three wastes emission of core products. At the same time, the product production standards meet the on-site audit of FDA and the certification of EU cosmetic raw materials; 2) Establish in-depth cooperation with international head chemical and cosmetics companies, including DSM, Ashland, tezhixin, Beiersdorf, Johnson & Johnson and L’Oreal. The revenue of the top five customers accounts for more than 60% and the cooperation is stable; 3) It has a rich sunscreen product matrix, covering all UVA / UVB bands, including 6 of the 14 products approved by FDA. At the same time, it is one of the three major global manufacturers with large-scale production capacity of synthetic perfume lily aldehyde.
The rebound of short-term revenue performance is expected, the landing of medium-term production capacity is expected to continue to contribute to orders, and the extension of long-term product categories and customers will open a new ceiling. Affected by the epidemic, the company’s performance has been at a low point in the past 20 years, and the repair can be expected in the future. Specifically, 1) the company has gradually walked out of the dilemma relying on synthetic spices and the extension of Chinese customers, and the revenue of 21q3 has resumed growth. At the same time, a new round of price negotiation is expected to hedge the rising pressure of upstream raw materials and freight; 2) The company raised funds to build a new production capacity of 17500 tons / year, of which avobenzone, octyltriazinone and other products have been put into trial production, and the completed production capacity is 17000 tons / year, which is expected to contribute revenue to the company quickly; 3) Over the past 20 years, the introduction of new regulations and stricter supervision in China’s cosmetics industry have helped high-quality leading raw material manufacturers to expand domestic customers; 4) Fourth, the company plans to expand whitening and other cosmetic active ingredients, enrich the category layout, and cooperate with the government in high-end personal care and synthetic flavor projects. Among them, the cooperation project of Anqing high tech Industrial Development Zone plans to invest about 3 billion yuan, with a design capacity of 95000 tons / year and an output value of 4.3 billion yuan, which can be expected to open the long-term ceiling.
Profit forecast and investment rating: we estimate that the company’s revenue from 2021 to 2023 will be 1.06 billion yuan, 1.46 billion yuan and 1.78 billion yuan respectively, with the same increase of 4.7%, 38.3% and 22.2% respectively, and the net profit attributable to the parent company will be 160 million yuan, 250 million yuan and 320 million yuan respectively, with the same increase of – 2.5%, 57.6% and 26.9% respectively. According to the closing price on January 21, 2022, The corresponding PE of the company is 38 times, 24 times and 19 times respectively. As the world’s leading manufacturer of sunscreen raw materials, the company’s short-term performance can be repaired. It is expected to achieve steady growth in the medium and long term due to the implementation of capacity expansion, domestic sales and category extension. We are optimistic about the future development of the company, cover it for the first time and give a “buy” rating.
Risk factors: the terminal prosperity of the global sunscreen market is declining; The intensification of industry competition leads to the failure of new production capacity orders to meet expectations; The price rise of new orders is less than expected, which makes it impossible to hedge the upward pressure on costs.
