SANYOU CHEMICAL INDUSTRIES(600409)：1H22 RESULTS IN LINE; DEMAND FOR VISCOSE STAPLE FIBER TO BOTTOM OUT AND REBOUND

1H22 results in line with our forecast
Sanyou Chemicals Industries (Sanyou) announced that in 1H22, its revenue rose 9.5% YoY and 2.2% HoH to Rmb12.26bn, and net profit attributable to shareholders fell 37.5% YoY to Rmb730mn (Rmb0.35/sh, +44.8% HoH). Its 1H22 results were in line with our expectation.
In 2Q22, revenue rose 14.8% YoY and 8.7% QoQ to Rmb6.38bn, and attributable net profit fell 14.6% YoY to Rmb490mn (Rmb0.24/sh, +103.7% QoQ). Earnings rose QoQ in 2Q22, as demand for sodium carbonate and caustic soda increased.
Trends to watch
Demand for viscose staple fiber to bottom out and rebound.
Supply: Overcapacity in the viscose industry has eased over the past four years, as companies have stopped adding new viscose projects since 2018. This, coupled with M&A deals at leading companies and the phase-out of technologically backward projects, pushed up the concentration ratio of the viscose industry. The market share of the top 3 companies in the industry (CR3) has increased to 65% from 45% in 2017.
Demand: We expect China's viscose exports to increase, as the overseas production volume of cotton may decline due to dry weather. In addition, we think domestic demand for viscose will be strong in September and October, as the impact of the COVID-19 resurgence subsides.
We expect demand for sodium carbonate to remain strong amid the implementation of growth stabilization policies. Data from sci99.com shows that the spot price of sodium bicarbonate in eastern China is Rmb2,800/t (down 6.4% from the average price of this product in 1H22). We think demand for sodium carbonate will continue to increase YoY in 2022, as: 1) GFA completed in China may continue to slightly rise YoY amid the implementation of growth stabilization policies; and 2) the rapid development of photovoltaic projects and a rising penetration rate of double-glazed modules will likely boost demand for sodium carbonate. Overall, we think demand for this product will remain strong.
Industry investment plan to bolster long-term growth. According to its announcement, Sanyou plans to invest Rmb57.0bn in its long-term industry development. It plans to build a 300,000t/yr caustic soda and downstream products project and a 300,000t/yr new solvent-based cellulose fiber project. The firm also plans to increase production capacity of upstream silica, silicone monome, and downstream new materials such as silicone rubber. According to corporate filings, the company has compiled the workplace safety and environmental appraisal reports for its 60,000t/yr lyocell project; and its 200,000t/yr organosilicon project is under construction. Overall, we are upbeat on the growth potential of Sanyou during the Five-Year Plan (FYP) period over 2021–2025.
Financials and valuation
We maintain our 2022 and 2023 earnings forecasts. The stock is trading at 9.1x 2022e and 8.5x 2023e P/E. We maintain an OUTPERFORM rating, but cut our target price 18.2% to Rmb9.00 to reflect a lower sector valuation. Our TP implies 11.8x 2022e P/E and 11.0x 2023e P/E, offering 30.1% upside.
Risks
Projects proceed more slowly than expected; demand weakens; competition intensifies.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。