Zhejiang Pharmaceutical (600216): Capacity integration is expected to land in VE industry is expected to usher in a long upward cycle

Zhejiang Pharmaceutical (600216): Capacity integration is expected to land in VE industry is expected to usher in a long upward cycle

Investment summary: On May 25, 2019, the distribution of Nantec (the main part of Zhejiang Pharmaceuticals VE business) was officially announced. We expect that the delivery of the distribution will be completed by the end of June. After that, Nantec will stop production and maintenance to reach DSMProduction standards, we expect Nantex will need?
After 8 months of maintenance, the production capacity of the VE industry tends to be integrated.

In 2018, Zhejiang Medicine, Xinhecheng, DSM, BASF, Nent, and Beisha’s top six VE productions were 16,000 tons, 15,500 tons, 14,000 tons, 7,000 tons, 20,000 tons, and 4500 tons, respectively.

In the short term, if the production can be stopped for maintenance, it will affect the energy released by itself2, and because the interruption of intermediate supply affects downstream manufacturers, it is conservatively estimated that the capacity gap is at least 2, and the VE supply will be turned from loose to relatively tight.

In terms of prices, in 2017, due to environmental inspections and other reasons, VE experienced a cyclical market, but due to the ability to expand production to a low point, the price of VE is still hovering at a low level. There is currently no additional capacity.

With reference to the stable supply pattern from 2008 to 2013, we believe that VE is expected to usher in a new cycle of high prosperity, and the price is expected to return to 100 yuan / kg and coexist for a long time. It is still in the initial stage of price increase and there is huge room for price increase in the later period.
Zhejiang Medicine is the world’s second domestic leader in the VE field. It will significantly benefit from the profit elasticity brought by the long-term tightening of product prices by VE suppliers. According to calculations, the company’s VE (50% VE powder) production capacity is 30,000 tons., Every 10 yuan increase in VE price will increase net profit2.

5.6 billion.

As the current cooperation between Nent and DSM is still in the announcement stage, specific capacity integration will take time, so we will not consider the long-term impact of changes in the industry’s supply structure on VE prices.

At the current point in time, we expect the company to achieve operating income of 71 in 2019-2021.

3.7 billion, 75.

390,000 yuan, 79.

7.7 billion yuan; net profit attributable to mothers is 4.

5.9 billion, 5.

3.9 billion yuan and 7.

20 ppm; EPS is 0.

48 yuan, 0.

56 yuan and 0.

75 yuan, what is the current expected PE?
22X,?
1重庆耍耍网9X and?
14X, maintaining “Highly Recommended” rating.

Investment strategy: Grasp the investment opportunities for the orderly contraction of VE’s global production capacity.

Risk warning: industry capacity integration fails to meet expectations, VE price increase fails to meet expectations