Fine chemicals: Focus on the uptrend of the sector and subdivision industry leaders

In 2018, the total output value of the chemical industry was 13.7 trillion yuan, accounting for 15.2% of the national GDP and about 40% of the global chemical output value, ranking first in the world. In the past ten years, the growth rate of fixed asset investment in the chemical industry is overall in the declining channel, so relying on expanding investment, the mode of production capacity will be more and more difficult, and taking the high value-added route is the inevitable choice in the future, we are optimistic about the leading companies with the integration ability of the industrial chain and the ability to continue to grow in the field of fine chemical industry.

1 Vitamins: Focus on VA, VE, biotin and coenzyme Q10

Vitamins are a kind of trace organic substances that humans and animals must obtain from food in order to maintain normal physiological functions. The technical barriers to vitamin production are high, the process technology is complex, and the pollution is heavy, so China's vitamin industry has been blocked by Western countries for a long time. After about 20 years of development, the world's vitamin industry has gradually formed a three-way pattern of DSM, BASF and Chinese enterprises, and the production capacity is mainly located in China. In 2018, China's vitamin production was about 328,000 tons, accounting for 77% of global production, of which 247,000 tons were exported, accounting for 75% of China's production, and the export value was 2.45 billion US dollars. The main factors affecting China's vitamin industry are downstream demand, environmental regulation and safety.

Vitamin A: Short-term supply constraints due to the BASF condensate tower accident

Vitamin A is a fat-soluble vitamin, also known as retinol or anti-dry eye factor. It was discovered by Elmer McCollum and M. Davis between 1912 and 1914. It cannot be synthesized in humans and animals or is not synthesized in sufficient quantities, so although the amount required is small, it must often be supplied by food. Vitamin A technical barriers are high, production capacity is concentrated in a few large production enterprises, few new entrants. 

Vitamin E: the supply of raw materials is limited and the production of special technology is discontinued, and the price has entered the medium and long term rising channel

Vitamin E is a fat-soluble vitamin, also known as tocopherol, which has strong antioxidant capacity, can regulate the metabolic function of the nucleus, promote the development of animal gonads, improve the body's immune ability and reproductive ability. Feed is the main downstream of vitamins, accounting for about 48%, and nearly 70% of VE are used as feed additives, the rest are used for medicine and cosmetics, and a small amount is used for food and beverage. According to GlobalMarket Insights, Inc., the global vitamin E market size will grow at a compound growth rate of 3.5% from 2016 to 2024.

Biotin: Benefit from the capacity gap, the price increase continues

Biotin is one of the vitamin B group, also known as vitamin H, vitamin B7, coenzyme R, involved in fat, sugar, protein metabolism, is an indispensable vitamin to maintain body health. In 2002, China's Fudan University broke through the biotin industrial synthesis technology, greatly reducing its production cost and time. Since then, China has gradually become the main production base of biotin in the world, and more than 90% of the world's biotin is produced in China.

Biotin supply: oligopoly pattern, highly concentrated industry: Compared with the market demand for tens of thousands of tons of vitamin A and vitamin E, biotin belongs to the small industry in vitamins, and the market size of biotin is about 957 million yuan in 2018. In 2018, global biotin demand was 230 tons, an increase of 4.55%. Among them, China's biotin demand of 40 tons, an increase of 25%; Foreign demand 190 tons, an increase of 1.06%, China's demand growth faster than the global demand growth. In 2018, China's biotin production was 295 tons, an increase of 5.35%, and China's biotin production growth rate was faster than the global demand growth. The small market size coupled with stable demand growth, resulting in the demand for biotin quickly can not keep up with the pace of China's biotin manufacturers to expand production. The global biotin industry has maintained a state of nominal overcapacity since 2012.

Coenzyme Q10: Benefiting from the capacity gap, the price increase continues

coenzyme Q10 (coenzyme Q10), commonly known as vitamin Q, also known as ubiquinone, decanoquinone, is one of the indispensable elements of human life, plays an important role in the mitochondrial respiratory chain electron transport and the production of adenosine triphosphate. Coenzyme Q10 has many pharmacological effects such as scavenging free radicals and improving immunity. It can effectively protect and improve the functions of liver, brain, heart and nervous system, effectively protect cardiovascular system and prevent Alzheimer's disease. It is widely used as antioxidant and immunomodulatory drugs, health products and functional food additives. The global demand for coenzyme Q10 is about 800 tons, the demand growth rate is 8-10%, and the market size is about 350 million US dollars. The downstream demand for coenzyme is mainly used in the field of health care, and the demand for dietary nutritional supplements accounts for 60%, followed by cosmetics and medicinal fields, accounting for 25% and 15%, respectively.

Xinhecheng: Based on technological innovation, to create a diversified integrated fine chemical industry leader

VA stopped falling, VE inventory to accelerate the price at the bottom, and continue to be bullish in the later period. Vitamin downstream feed production marginal improvement, downstream demand gradually improved, and the industry supply side contraction logic has always existed, BASF VA device will maintain a low starting load before stopping production next year, the current industry inventory is low, supply is tight, with the improvement of downstream demand VA prices in the late bullish; Can special technology and DSM joint venture VE production plant production to the third quarter of next year, superposition between cresol supply shortage, industry supply significantly reduced, inventory to accelerate, optimistic VE prices continue to rise, the current VE offer 58,000 yuan/ton, the transaction price has risen from 42,000 yuan to 50,000 yuan/ton, European prices have also begun to rise, VE will be the most flexible variety of Xinhe Cheng's performance next year.

Profit forecast and valuation: It is estimated that the company's net profit from 2019 to 2021 will be 27.84, 35.73 and 4.747 billion yuan respectively, and the current stock price corresponds to 17.3/13.4/10.1 times of PE.

Zhejiang Medicine: The breakthrough of innovative drugs is imminent, and the vitamin business is flexible

Vitamin business continues to improve in the future: the company has VA production capacity of 5,000 tons, VE powder production capacity of 40,000 tons, BASF VA due to the condensing tower accident is in a state of production, will maintain a low starting load before production next year, the current industry inventory is low, supply is tight, with the improvement of downstream demand VA prices late rise; Nengte technology and DSM joint venture VE production plant production to the third quarter of next year, superposition between cresol supply shortage, industry supply significantly reduced, inventory to accelerate, VE prices will enter the upward channel in the future. Transform innovative drugs and actively distribute ADC drugs: In 2017, the company established Zhejiang Xincode Biology, an innovative ADC drug platform company, to cooperate with AMBRX, an American company, actively layout ADC drugs, and obtained the regional rights and interests of anti-HER2-ADC (ARX788) and anti-CD70-ADC (ARX305) in China, among which ARX788 has excellent clinical phase I data. Could be a blockbuster drug. In addition, as a new generation of fluoroquinolone free drugs, the market space is expected to reach 1 billion yuan, capsules have been included in medical insurance, injection is expected to be approved in the first half of next year, and it is expected to be rapidly released in the later period.

Jindawei: Coenzyme Q10 price increase is expected to be strong, and the future profit elasticity is large

The company's vitamin business includes VA and coenzyme Q10, the current supply of coenzyme Q10 industry is mainly concentrated in Jindawei, Shenzhou Biological and Xinhe Cheng three, due to environmental supervision, about 30% of the production capacity of Coenzyme Q10 industry has been shut down, currently Shenzhou Biological will increase the price of coenzyme Q10 to 550 US dollars/kg, about 4,500 yuan/kg. The actual transaction price of the US market is 450 US dollars/kg, the previous price was 170 US dollars/kg, because coenzyme Q10 is currently highly concentrated in the industry, and there are no new entrants, it is expected that the price of the product is expected to continue to rise in the future, while VA is expected to continue to reduce the supply of the industry due to the imminent shutdown of BASF, and the price is expected to continue to rise; In addition, the company actively layout the whole industry chain of health care products, especially in the field of functional drinks, is a new profit growth point for the company, recommend attention.

2 Industrial fungicide

Baiao Chemical: The supply of fungicides and intermediates continues to be limited, and the company's performance has entered the explosive period

Industrial fungicides have a broad market, and environmental protection is increasingly driving market demand: Global industrial fungicide market size of 40 billion yuan, the industry growth rate of about 3-5%, domestic about 12 billion yuan, the growth rate of about 10%, is the world's second largest market, accounting for about 30% of the market share, downstream 42% market for industrial water treatment, with the implementation of environmental taxes and sewage permits, industrial wastewater treatment volume is rising year by year. The demand for upstream water treatment chemicals has a strong pulling effect. The supply of F nitrile and its downstream products is limited, and the current product price is still strong, and the profitability is strong: the company raised 7,000 tons of F nitrile and 2,500 tons of BIT have all been put into production, and the production capacity has climbed smoothly, from the price point of view, the intermediate F nitrile price is about 80,000, the BIT price is 20-250,000, and the product price is still strong. After the fourth quarter, production and sales are expected to increase significantly, and F-nitrile, BIT and MIT are future performance growth points: with the 7,000 tons of F-nitrile intermediates put into production in the fourth quarter, it is expected that the production and sales of F-nitrile and its downstream products BIT will increase significantly; At the same time, due to the impact of the shortage of supply of the intermediate 3-mercaptopropionic acid methyl ester, the price of MIT has risen significantly, the price of the product has risen from 60,000 to 140,000, coupled with the conversion of some CIT/MIT production capacity of the company, MIT production and sales will also be improved, F-nitrile-BIT and MIT will be the main profit growth point of the company in the future.

Profit forecast and valuation: The net profit of the company is expected to be 402/620/764 million yuan from 2019 to 2021, and the current stock price corresponds to 15.3/9.9/8.0 times of PE

3 Additives

Sweetening agent

Sweetener refers to the food additives that give food sweetness, and there are many varieties. Among several sweeteners, acesulfameae and sucralose have higher safety and reasonable price, and their comprehensive properties are better than saccharin, cyclamate and aspartame. Therefore, based on comprehensive considerations, acesulfame, sucralose will gradually replace saccharin, cyclamate and aspartame to become the main demand products in the middle and high-end markets.

Jinhe Industry: The industrial chain continues to increase, and the company's core competitiveness continues to expand

The industrial chain continues to extend, and the company's comprehensive competitiveness is expected to improve: the company recently disclosed a number of proposed construction projects, including 5000 tons of sucralose, 5000 tons of methyl-ethyl maltol, and the annual output of 4,500 tons of Jialet Musk solution, 5000 tons of 2-methylfuran, 3000 tons of 2-methyl-tetrahydrofuran, 1000 tons of ammonium furan and other projects. We believe that the projects disclosed by the company include the consolidation of existing product competitiveness, market-related integration and technology-related integration. The new project will consolidate the market position of the company's existing products, and open up the upstream and downstream industry chain around the bivinyl ketone (acesulfide raw materials) and furfural (methyl-ethyl maltol) raw materials, which is conducive to the horizontal and vertical integration of the industry chain. Form upstream and downstream synergies, reduce the company's comprehensive cost, improve the company's comprehensive competitiveness, and extend the downstream to pharmaceutical solvents, pharmaceutical intermediates, flavors, daily chemicals and other fields with large growth space.

Profit forecast and investment rating: It is expected that the company's net profit from 2019 to 2021 will be 8.26, 10.51 and 1.296 billion yuan respectively, which corresponds to 13.9, 10.9 and 8.8 times PE in 2019, 2020 and 2021, respectively. Relying on its strong process cost reduction and efficiency, scale effect and efficient management system, the company has entered the fine chemical segments such as methyl-ethyl maltol, Acesulfonl and sucralose in the past ten years, and has obtained absolute market share and pricing power with excellent cost control ability and continuous process improvement ability. We are optimistic that the company will achieve horizontal and vertical integration around the existing industrial chain, extend downstream to pharmaceutical solvents, pharmaceutical intermediates, flavors, daily chemicals and other fields, and achieve further extension and expansion of core competitiveness.

Polymer material additive

The domestic market for polymer materials additives is about 15 billion yuan, and the global market is about 45 billion yuan, with an industry growth rate of 4%-6%, and the growth rate of the additive industry is higher than that of the industry. At present, the concentration of the domestic market is low, the industry is in the stage of gradual withdrawal of small production capacity, and the rapid expansion of large-scale enterprises. In the future, companies with competitive advantages will fully benefit from the rapid growth of the industry. Antioxidant, as one of the additives of polymer materials, can effectively reduce the material autoxidation reaction rate and delay aging degradation, and is one of the most commonly used chemical additives in the manufacturing process of various polymer materials. According to the different mechanism of action, antioxidants can be divided into main antioxidants and auxiliary antioxidants. Among them, the main antioxidants include hindered phenolic antioxidants and aromatic amine antioxidants, and the auxiliary antioxidants include phosphite ester antioxidants and sulfur-containing antioxidants. According to the different scope of use of antioxidants can be divided into general antioxidants (GAO) and special antioxidants (SAO) two categories.

Leanlon: Optimistic about the company's capacity release and market share gradually increased, to become one of the world's leading anti-aging agent companies

Strong product competitiveness: 1) The downstream anti-aging agent covers 60% of the world's top 50 chemical enterprises, including PPG and other head coating manufacturers, the main supplier of Wanhua Chemical, product quality has been recognized by large enterprises. 2) Strong R & D genes: Most of the company's management are teachers and professors from the Department of Chemical Engineering of Tianjin University, and they belong to the top 1% of executives in all aspects of ability. The boss has a clear strategy, strong execution and entrepreneurial spirit. 3) High cost performance: the unit price is 5-10% lower than BASF and Japan Songwon and other leading companies, while 48-hour fast response service. 4) Full formulations, can provide solutions: and BASF is the only industry full category supplier, with more than 60 formulations. Products are in short supply and in a period of rapid expansion: Under the release of new capacity in the next three years, production and sales are expected to increase rapidly. In 2018, the company still has more than 20% of sales are outsourced processing, and all the follow-up will be self-sufficient, and the orders are full. In the next 1 year, about 40 downstream customers will become the main suppliers (similar to Wanhua).

Profit forecast and investment rating: We estimate that the company's net profit for 19~21 years will be 3.2, 450 and 560 million yuan respectively, corresponding to 22.5, 16.0 and 12.9 times PE

Real Madrid Technology: a rapidly growing specialty surfactant leading enterprise

Small variety sector continues to increase volume: the company adopts the business strategy of "large variety adjustment structure, functional small varieties to make profits", constantly optimizes the product structure, and the sales proportion of small variety sector gradually increases, and the profitability continues to increase; At the same time, actively expand the production of small varieties by means of fundraising and investment to further improve the company's profitability. Layout of high gross profit of small varieties and new material products, fundraising projects into the volume period. At present, the company has a production capacity of 180,000 tons, including 110,000 tons of Lvke An factory, 70,000 tons of Zhangzhen Industrial New Area, and more than 1,300 kinds of products, which is the most complete variety of domestic enterprises. The company's future projects mainly focus on small varieties and new material products with higher gross profit, including 85,000 tons of small varieties of surfactants and 100,000 tons of new material resins. The new layout of products will continue to optimize the company's product structure and significantly improve the company's profitability.

Performance growth and valuation: It is estimated that the company's net profit from 2019 to 2021 will be 271/364/462 million yuan, which corresponds to 17.0, 12.7 and 10.0 times of the valuation in 19 to 21 years.

4 Pesticides

Yangnong Chemical: a domestic pesticide leading company with steady growth, Rudong Phase III, preparation and other projects will become the company's endogenous increment in the next few years

The permethrin business still maintains strong profitability and builds a safety margin for the company: The company is the only company in the whole industrial chain of pyrethroid insecticides in China, and its domestic market share ranks first. The company continues to build a safety margin for the company by virtue of technical barriers and safety and environmental barriers. Rudong Phase III project has been approved by the EIA, and is expected to gradually put into operation in 2020: Rudong Phase III investment is 2.022 billion yuan, and it is expected to achieve revenue of 1.541 billion yuan and net profit of 372 million yuan after reaching the target. The fourth Rudong phase and 32,600 tons of pesticide preparation projects are expected to achieve a revenue of 1.023 billion yuan and a net profit of 128 million yuan after reaching the target; 32,600 tons of pesticide preparation project investment of 202 million yuan, is expected to achieve a revenue of 625 million yuan, net profit of 72.73 million yuan. Acquisition of Sinochem crops and agricultural research company to complement the shortcomings: Sinochem crops downstream sales channels spread across a wide range, smoke company has a strong R & D and innovation capabilities, and the advantages of Yangnong engineering can be complementary.