(Report Producer/Analyst: Guojin Securities, Wang Minghui, Chen Yi)
1. The company is a PVA leader, and carries out product layout around the industrial chain
1.1 The company takes PVA as the core to build the whole industry chain
The company is currently the largest production capacity, the most advanced technology, the most complete industrial chain, the most complete product varieties of polyvinyl alcohol (PVA) series products manufacturers, for many years focusing on the development, production and sales of PVA and related products, the company's PVA product production capacity ranks first in the country, the world's forefront, the market share accounts for more than 30% of the domestic market;
The production and sales of high-strength and high-modulus polyvinyl alcohol fiber products rank first in the country, reaching more than 60% of the domestic total, and the international market share is about 40%;
According to the continuous extension of the PVA industry chain, the company has built four major industrial sectors of chemical industry, chemical fiber, building materials and new materials, forming five industrial chains, including calcium carbide-PVA-PVA fiber, PVA-PVA optical film for film-polarizer, PVA-PVB resin-PVB film, biomass alcohol-ethylene-vinyl acetate-VAE/PVA, VAC-VAE-redispersible latex powder.
1.2 The reform of state-owned enterprises fully stimulates the enthusiasm of the management
The shareholder of the company is Wanwei Group, and the actual controller is the Anhui Provincial People's Government. The company's shareholding structure is clear, the largest controlling shareholder is Anhui Wanwei Group Co., Ltd. (100% controlled by Anhui State-owned Assets Supervision and Administration Commission), with a shareholding ratio of 34.01%, and the remaining shareholders hold no more than 2% of the shares.
The company has 6 wholly-owned subsidiaries, namely Mengwei Technology, Guangxi Wanwei, Wanwei Huashan, Wanwei Machinery, Wanwei Jinsheng, Shangwei New Materials, Mengwei Technology is engaged in PVA, cement/clinker business, Guangxi Wanwei mainly produces PVA, VAE emulsion, vinyl acetate and methyl acetate, Wanwei Huashan is engaged in redispersible rubber powder, environmental protection building materials business, Wanwei Machinery produces turning, milling and drilling equipment, arc welding equipment, Wanwei Jinsheng mainly produces and sells PVB film, and Shangwei New Materials mainly produces PVA water-soluble fiber.
In April 2020, Wanwei High-tech was included in the special action of "Science and Technology Reform Demonstration Enterprise" by the State-owned Assets Supervision and Administration Commission of the State Council. In November 2022, Wanwei High-tech compiled and issued the "Wanwei High-tech Excess Profit Sharing Plan (2022-2024)" in accordance with the "Operation Guidelines for the Excess Profit Sharing Mechanism of "Double Hundred Enterprises" and "Science and Technology Reform Demonstration Enterprises" (State-owned Enterprise Reform Banfa [2021] No. 1), and began to implement excess profit sharing.
The annual excess profit sharing amount of Wanwei High-tech does not exceed 30% of the company's excess profit in the current year, that is, the annual excess profit sharing amount is ≤ (annual realized net profit - annual target net profit value) * 30%. In terms of deferred payment, the excess profit sharing amount of Wanwei High-tech is included in the total salary, and a special account is opened for unified management after withdrawal, which is generally cashed out in a deferred manner and cashed out in three years. 50% in the first year, 30% in the second year, and 20% in the third year.
The establishment of excess profit sharing mechanism, on the one hand, is the need to accelerate the reform of state-owned enterprises, can fully stimulate the innovation and creation of core technology and backbone talents, accelerate the pace of reform and development, on the other hand, it is also the need for enterprises to achieve sustainable development, can fully mobilize the enthusiasm of personnel at the same time, and actively promote the industrialization of technology and the transformation of scientific and technological achievements.
1.3 The company's performance is stable
From 2020 to 2022, the company's performance continued to grow steadily. From 2014 to 2022, the compound growth rate of the company's revenue reached 10%, and the compound growth rate of net profit attributable to the parent company reached 27%.
In 2022, revenue reached 9.9 billion yuan, +21% year-on-year, and net profit attributable to the parent company was 1.37 billion yuan, +37% year-on-year. The increase was mainly attributable to the increase in sales volume and price increase of the main products polyvinyl alcohol, vinyl acetate, polyester chips and dispersible rubber powder.
In the first three quarters of 2023, the company's revenue was 6.609 billion yuan, a year-on-year increase of -7.98%, and the company's net profit attributable to the parent company was 406 million yuan, a year-on-year increase of -68.87%.
The company's expense ratio has been continuously optimized during the period. The company's overall period expenses decreased from 13.3% in 2017 to 9.1% in 2022, and the optimization of the period expenses was due to the improvement of the company's product quality, which reduced the management and financial expense ratios, and the decrease in the sales expense rate was mainly due to the implementation of the new revenue standard in 2020 and the reclassification of transportation costs and handling costs to the main business costs. The company has increased R&D investment since 2018, and the proportion of R&D expenses in revenue has increased year by year.
Second, the demand for PVA has grown steadily, and the competitive landscape has been continuously optimized
2.1 PVA demand grew steadily, and the downstream consumption structure was further expanded
With the application and exploration of new technologies, new processes and new uses, PVA also has a wide range of application prospects in films, soil conditioners, food packaging, building materials, medicine, tanning, papermaking, electronics, environmental protection and other industries.
There is room for further upgrading in the field of PVA application in China.
With the development of the mainland economy, the domestic demand and export of high-end high-density high-grade textiles have increased, the development of high-grade paper industry and oil exploitation industry has accelerated, the automobile industry is booming, and the demand for safety glass for automobiles and buildings has risen rapidly, and these industries have provided a broad space for the development of new polyvinyl alcohol products.
At the same time, a large number of domestic infrastructure construction provides development opportunities for the adhesive market, and the steady development of electronics, papermaking, medicine, and fine chemical industries has further promoted the rise in demand for polyvinyl alcohol.
2.2 The new production capacity of PVA in the future is only Wanwei, and the competition pattern is gradually improving
The domestic PVA industry has completed the reshuffle, and the new production capacity is planned only in Wanwei High-tech.
During the "13th Five-Year Plan" period, under the guidance of industrial structure adjustment, the domestic PVA industry began to reduce production capacity, and successively closed or permanently stopped production of Jiangxi Jiangwei High-tech Co., Ltd., Hunan Xiangwei Co., Ltd., Fujian Textile Chemical Fiber Group Co., Ltd., Yunnan Yunwei Co., Ltd., Beijing Oriental Petrochemical Co., Ltd. Organic Chemical Plant, Guizhou Crystal Organic Chemical Group Co., Ltd. and Lanzhou New West Vinylon Co., Ltd. and other enterprises, with a total production capacity of more than 300,000 tons, completing the first round of reshuffle.
At present, there are only 8 domestic enterprises that retain polyvinyl alcohol production capacity, with a total production capacity of 1.096 million tons, and the industry concentration has increased significantly, and the new production capacity is only planned by Wanwei High-tech.
Global polyvinyl alcohol (PVA) production is mainly concentrated in a few countries and regions such as China, Japan, and the United States, with a total plant capacity of about 1.85 million tons, and the actual output in 2022 is about 1.3 million tons, of which the Asia-Pacific region is the main production region, accounting for more than 80% of the world's total output.
The world's representative enterprises mainly include Kuraray Co., Ltd., Sekisui Chemical Industry Co., Ltd., Japan Synthetic Chemical Industry Co., Ltd., Anhui Wanwei High-tech Materials Co., Ltd., China Petroleum & Chemical Corporation, Taiwan Changchun Group, Inner Mongolia Shuangxin Environmental Protection Materials Co., Ltd. and Ningxia Earth Recycling Development Co., Ltd.
In 2022, the total PVA production capacity in mainland China will be 1.096 million tons, the output will be 692,000 tons, and the apparent consumption will be 526,000 tons.
2.3 The company's PVA advantages are significant
PVA production process route is long, the technology is complex, the difficulty is large, there are mainly calcium carbide acetylene method, petroleum ethylene method, natural gas acetylene method three process paths, of which calcium carbide acetylene method is the earliest to achieve industrial production, the process operation is simple, the yield is high, the by-products are easy to separate, but it will cause serious pollution to the environment, the domestic production route is the main, the process accounts for 62.3%; The utilization of thermal energy is high, and the ethylene method is the main method for the production of PVA in the world, accounting for 98.01% of the process, and the acetylene produced by the natural gas acetylene method is mature and conducive to comprehensive utilization, but the acetylene route investment and technical difficulty of the process are relatively large, and only the Sinopec Sichuan Vinylon Plant of Sinopec Group adopts this process for production.
The product attributes of calcium carbide determine that its production process has the characteristics of high energy consumption, and in the context of continuous efforts in energy conservation and emission reduction policies, the calcium carbide industry is still in the adjustment stage of de-capacity.
According to statistics, the current long-term production capacity of calcium carbide in the industry is about 3.5 million to 4 million tons/year, and the production capacity of small calcium carbide furnace devices with a capacity of 100,000 tons/year and below is still 1.2 million tons/year.
According to the Ministry of Industry and Information Technology recently issued the "calcium carbide industry standard conditions (draft for comments)", the industry's energy consumption standards will be more stringent, a single furnace capacity of less than 12,500 kVA calcium carbide furnace or will be included in the elimination list, capacity integration will continue.
In the future, with the continuous transformation and upgrading of the calcium carbide industry, the industry's production capacity and market share will be further concentrated on the energy area, the upstream and downstream recycling industry chain, and the leading enterprises with technical and financial advantages, forming a more significant competitive advantage.
The company has its own production capacity of 450,000 tons of calcium carbide and 550,000 tons of vinyl acetate, which will enjoy cost dividends. Since March 2021, driven by the cost of calcium carbide, the cost of purchasing calcium carbide or vinyl acetate has increased significantly, the price of PVA has accelerated, and the price difference has continued to expand, with the highest price of PVA in 2021 reaching 27,618 yuan/ton, and the price difference reaching up to 22,674 yuan/ton.
In October 2023, the prices of calcium carbide and PVA both showed varying degrees of decline, with the current price of calcium carbide at 3,065 yuan/ton, the price of PVA at 12,534 yuan/ton, and the price difference of 9,469 yuan/ton, fully releasing the overall price risk.
Guangxi Wanwei, a wholly-owned subsidiary of Wanwei High-tech, has a PVA production capacity of 50,000 tons, and has opened up the process route of alcohol-ethylene-vinyl acetate-PVA by using local biomass resources such as sugarcane and honey, and has mature proprietary technology.
Relying on Guangxi Province, the largest sugar producing province in China, the project uses the molasses waste liquid after sugar cane extraction to ferment to produce alcohol, and uses alcohol to produce ethylene raw materials, and then produces vinyl acetate (VAC), polyvinyl alcohol (PVA), vinyl acetate-ethylene copolymer emulsion (VAE) and other products. At the same time, the carbon dioxide tail gas and concentrate produced in the process are used to produce edible carbon dioxide and organic fertilizers.
For a long time, the vast majority of domestic PVA enterprises have been producing PVA by calcium carbide acetylene process, which has problems such as high energy consumption, high pollution and high cost, and there is also a gap in quality compared with foreign counterparts. Through years of technology accumulation, the company has mastered the key technology of the ethylene route, and the 60,000-ton ethylene special polyvinyl alcohol upgrading project is expected to be completed and put into operation before the end of 23 years.
3. Extend the industrial chain and lay out the new material business
3.1. The company has made a breakthrough in the research and development of PVA optical film, and will gradually realize import substitution in the future
PVA optical film belongs to the high-end field of PVA products and is the core film material of polarizer.
Due to the continuous growth of global consumer electronics terminal (TV, tablet computer, smart phone, etc.) demand and the continuous expansion of screen area, the rapid development of the global display panel industry has been driven;
In 2022, when the market is down, the polarizer market will shrink to a certain extent. According to Yano Research data, the global polarizer output in 2022 will be about 489 million square meters, a year-on-year decrease of 21%. In recent years, as the global display panel industry is constantly shifting to Chinese mainland, the panel production capacity of Chinese mainland is increasing year by year, and the share of China's polarizer industry in the world will also steadily increase. In 2022, the polarizer production capacity of Chinese manufacturers will reach 330 million square meters, accounting for 67% of the global market.
At present, the global PVA optical film market is basically monopolized by two companies: Kuraray (70%) and synthetic chemicals. With the continuous expansion of the production scale of liquid crystal displays, the consumption of optical grade PVA film in China has grown rapidly. However, due to the high technical barriers of optical-grade PVA film, China has not yet completely broken through, more than 90% of optical-grade PVA film still needs to be imported, and there is huge space for domestic material substitution in the future. At present, there are only two domestic enterprises with PVA optical film production capacity, namely the company and Changchun Chemical (Taiwan-funded enterprises).
The company's 7 million square meters of large-size PVA optical film broke through the foreign technology blockade, became a domestic polarizer enterprise supplier, 23 years in April 23 formal mass production supply, the customer is Sanli spectrum, deep textile polarizer enterprises, can be used for large-size LCD panels, breaking the monopoly of Japanese Kuraray and synthetic chemistry, with the continuous introduction of downstream customers, the company will expand the production of 30 million square meters of large-size PVA optical film.
3.2 Vertically extend and build the whole industrial chain of PVB business
Polyvinyl butyral resin is a solvent-based resin synthesized by the reaction of polyvinyl alcohol (PVA) and butyraldehyde under the action of coal contact. Because PVB resin itself contains a large proportion of hydroxyl groups, it can undergo a bridging reaction with some thermosetting resins to improve chemical properties and coating film hardness.
Due to the above-mentioned excellent characteristics, PVB resin is widely used in glued safety glass interlayer film for automobiles and buildings, rust primer, baking paint, wood paint, printing ink, adhesive for electronic ceramics and printed circuit boards, adhesive for metal and metal, metal and plastic, modifier for hot melt adhesive, and waterproof processing of textiles.
PVB resin is mainly used in the automotive and construction industry to manufacture laminated safety glass, that is, the PVB resin is first pressed into a film, and then embedded between the glass plates to make laminated glass panels, the laminated material in the safety glass can absorb a certain impact energy, and this material has good sound insulation effect and UV resistance.
From the perspective of downstream consumption structure, about 79% of PVB resin is used in the production of safety glass in construction and automotive industries, 14% is used in photovoltaic materials, and the remaining 7% is used in paints, glues, dyes and other materials. In 2022, the total demand for PVB resin in mainland China is expected to be 150,000 tons, corresponding to a market size of about 2.2 billion yuan, of which about 130,000 tons of PVB resin for membranes and about 20,000 tons of PVB resin in other industries.
80% of the global market share of PVB resin is occupied by four companies: Solutia, Sekisui Chemical, DuPont and Kuraray.
On August 18, 2022, the company announced the acquisition of 100% equity of Wanwei Jinsheng, a high-tech enterprise specializing in the research and development, production and sales of PVB interlayer, which can produce construction-grade, automotive-grade PVB interlayer, sound insulation film, heat insulation film and BIPV photovoltaic film and other products.
In the architectural film market, the company has 25,000 tons of construction-grade PVB diaphragm, and Wanwei has established cooperative relations with leading glass manufacturers such as CSG Group and Taiwan Glass Holdings, and has reached preliminary cooperation intentions with Kibing Group.
In terms of automotive film, the mainland automotive-grade PVB diaphragm is more dependent on imports, and the company is expected to mass-produce 20,000 tons of automotive-grade PVB diaphragm under construction in the first half of next year. In addition, the company's PV-grade PVB diaphragm has been successfully certified in downstream PV module factories, which will significantly benefit once the BIPV demand is launched.
According to the business license issued by the Chaohu Market Supervision and Administration Bureau on August 17, 2022, the industrial and commercial change registration involved in this equity transfer has been completed, 100% of the equity of Wanwei Wansheng has been transferred and registered under the company's name, the company has legally held 100% of the equity of Wanwei Wansheng, and Wanwei Wansheng has become a wholly-owned subsidiary of the company and is included in the scope of consolidated statements.
According to the relevant provisions of the Accounting Standard for Business Enterprises No. 20 Business Combination, the enterprises participating in the merger are under the ultimate control of the same party before and after the merger, and it is not temporary, and it is a business combination under the same control.
In accordance with the relevant provisions of the Accounting Standards for Business Enterprises No. 2 - Long-term Equity Investment and the Accounting Standards for Business Enterprises No. 33 - Consolidated Financial Statements, the company made retrospective adjustments to the relevant financial statement data at the beginning of 2022 and from January to December 2021. Wanwei Jinsheng's operating income in 21 years was 95 million yuan, and the net profit attributable to the parent company was 17 million yuan.
The company is a domestic enterprise in the whole industry chain from PVA-PVB resin-PVB film, providing a series of products such as construction-grade PVB interlayer film and automotive-grade PVB interlayer film, with a current PVB interlayer production capacity of 20,000 tons/year, and an actual output of 13,700 tons in 22 years, after the new production line is put into operation, it will have a PVB interlayer production capacity of 40,000 tons/year in the future.
3.3 VAE Emulsion
VAE emulsion has the appearance of milky white or yellowish, and has the advantages of permanent softness, water resistance, weather resistance, low temperature resistance, fast bonding speed, high adhesive strength, safe and non-toxic use.
The products are widely used in adhesives, exterior wall insulation, building waterproofing, coatings, composite packaging materials, construction cement mortar modification, non-woven fabric manufacturing, paper coating, and general bonding of various polar and non-polar materials, among which adhesives are the most widely used areas of VAE emulsions, and they are also the areas with the largest market demand.
With the rapid development of the domestic economy, especially the country's emphasis on building energy conservation and environmental protection, the market demand for VAE emulsion will continue to grow in the future.
It is estimated that by 2025, the global VAE consumption demand will reach 2.5 million tons/year, with a compound annual growth rate of about 6.2%, and by 2025, the VAE consumption demand in Asia will reach 1.7 million tons/year, with a compound annual growth rate of about 7.0%.
In 2021, the global VAE production capacity reached 2.25 million tons, mainly distributed in Asia, Europe and the Americas, accounting for 69.2%, 21.3% and 9.5% respectively. It is estimated that the global VAE production capacity will reach 2.82 million tons in 2025, and the new VAE emulsion production capacity in the future will be mainly concentrated in Europe (160,000 tons/year) and China (411,000 tons/year).
At present, the main companies that produce VAE emulsions in the world are Air Products of the United States, Celanese of the United States, Dalian Chemical of Taiwan, Richhold of the United States, Wacker Chemicals (Korea), Beijing Organic Chemical Plant, Wanwei High-tech, Sichuan Chuanwei, etc.
It is estimated that by 2025, the domestic VAE production capacity will increase by 411,000 tons/year, all of which will be concentrated in East China, and the domestic VAE production capacity will reach 1.31 million tons/year.
The actual output of VAE emulsion products of Guangxi Wanwei, a wholly-owned subsidiary of the company, will be 88,900 tons in 2022, and the VAE emulsion project with an annual output of 60,000 tons at the company's headquarters has been officially put into operation in November 2022.
4. Earnings forecasts and valuations
Core assumptions
1) Polyvinyl alcohol: According to the feasibility study, the new 60,000-ton ethylene production capacity is expected to be put into operation by the end of 2023, and the sales volume of polyvinyl alcohol is expected to be 21, 24 and 270,000 tons from 2023 to 2025. Based on the judgment of the price in the first three quarters of 2023, the historical average price, and the increase in industry concentration in the future, we predict that the price in 2023-2025 will be 11,500 yuan/ton, 12,000 yuan/ton, and 12,300 yuan/ton, and the gross profit margin is expected to be between 18-21%.
2) Cement: The gross profit margin of cement is affected by the decline in product prices in the construction industry and the increase in the price of raw materials such as raw coal, and the gross profit margin will decline more in 2022 and 2023.
3) PVB resin: It is expected that the sales volume in 2023-2025 will be 25,000 tons, 40,000 tons, and 40,000 tons, and the price will be combined with the judgment of the price in the first three quarters of 2023, the historical average price, and the future industry concentration will increase, and the average price is expected to be 24,000 yuan/ton, 23,000 yuan/ton and 22,000 yuan/ton respectively in 2023-2025. 25%。
4) PVA optical film: In 2023-2025, it is estimated that the original 5 million square meters of PVA optical film will be further processed into polarizers, plus 7 million square meters of PVA optical film will be put into production in October 2022, and 2 million square meters of PVA optical film will be put into production in early 2025, and the sales volume in 2023-2025 is expected to be 2.21 million square meters, 8.5 million square meters, and 12 million square meters in 2023-2025. market demand, gross margin is expected to be 17%, 20%, 24%.
Other businesses: Other businesses include 20,000 tons of dispersible rubber powder, 35,000 tons of differentiated PET chips, etc., which are expected to maintain stable development in the future.
Valuation
We predict that the company's operating income in 2023/2024/2025 will be 8.981 billion/10.931 billion/12.032 billion yuan, a year-on-year increase of -9.66%/+27.71%/+10.07%, and the net profit attributable to the parent company will be 488 million/656 million/870 million yuan, a year-on-year increase of -64.36%/+34.39%/+32.74%, the corresponding EPS will be 0.23/0.30/0.40 yuan, and the corresponding PE of the current market value will be 18.23X/ 13.57X / 10.22X, we select Tozai Technology (PVB resin, similar to the company's products), Sanli Spectrum (polarizers are similar to the company's products) as comparable companies, comparable companies in 2023, 2024 and 2025 The average PE is 36X, 19X and 13X, compared with comparable companies, the company is underestimated, considering the growth brought by the company's new material volume, we give the company 15X in 2024, with a target price of 4.5 yuan / share.
5. Risk Warning
Risk of lower than expected capacity launches: The planned launch of new capacity may be less than expected, which may affect the company's earnings forecast.
Risk of large fluctuations in raw material prices: The cost of raw materials for major products accounts for a relatively high proportion, and if the prices of raw materials fluctuate significantly, it will affect the company's profits.
Risk of unsatisfactory R&D progress: The company's new material industry needs continuous R&D, and if the R&D is not up to schedule, it will affect the company's future development space.
Risk of lower than expected downstream demand: If the company's main downstream textile and paper industry demand is less than expected, it will affect the company's future revenue.
Risk of product price fluctuations: Affected by international commodity fluctuations, if the price of polyvinyl alcohol, the main product, fluctuates significantly, it will affect the company's operating income and profit.
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