NOVORAY CORP(688300)：A DOMESTIC LEADER IN SPHERICAL SILICA MICROPOWDER WITH BOOMING ALUMINA POWDER

　　Core views:
　　As the domestic leader in spherical silica micropowder, Novoray has seized the opportunity of the surge in demand for spherical silica micropowder amidst the rapid development of downstream fields of emerging applications relying on the flame method as well as its advantages in relevant technology and production capacity. With the implementation of the expansion project, Novoray may further consolidate its core position in the field of functional ceramic fillers, while high-end products such as spherical alumina powder and liquid fillers may grow into a second growth pole, which bodes well for Novoray to maintain solid earnings growth going forward. We assign 35x 2022E PE to derive a target market cap of Rmb8.2bn, implying a one-year target price of Rmb95 and initiate coverage with a “BUY” rating.
　　Abstract:
　　A domestic leader in spherical silica micropowder with a comprehensive presence in emerging functional ceramic fillers. Novoray is a leading high-tech manufacturer of powder fillers in China, and its main products include crystalline, fused, spherical silica micropowder and spherical alumina powder. It has won recognition from leading companies both at home and abroad, such as Samsung, KCC, Sumitomo, Panasonic, Showa Denko, Laird, Wacker, Parker and FRD, etc. Its production capacity of spherical silica micropowder topped 22kt in 2021, and it has developed into the largest domestic manufacturer in this field. Novoray has been vertically developing silicon/aluminum-based oxide powder fillers, and meanwhile it has been horizontally developing a variety of ceramic fillers, such as aluminum/silicon nitride and liquid fillers, to build a platform with an extensive product portfolio of functional ceramic fillers.
　　The development in emerging electronics, IT and new energy, etc. bodes well for the high growth of functional fillers. Under the rapid development of new-generation electronic engineering, information technology (IT) and new energy, etc., we have witnessed a sustained rise in the demand for silica micropowder with a lower cut point, higher filling intensity and lower radioactive content and spherical silica micropowder and spherical alumina powder with special electrical properties, such as Low Df (low consumption of dielectric materials). We predict that 1) benefiting from the development of printed circuit boards (PCBs), copper clad laminates (CCLs), chip packaging, honeycomb ceramics, paints & coatings and premium building materials, etc., the domestic demand for silica micropowder will reach 5.185mt in 2025, implying a CAGR of 15.6% over 2021-2025; 2) benefiting from the rapid development of new energy vehicles (NEVs), photovoltaic (PV) and wind power and fuel cell vehicles (FCVs), etc., the global demand for spherical alumina powder will reach 393kt in 2025, posting a CAGR of 28.7% over 2021-2025. China has become the largest manufacturer of spherical alumina powder in the world.
　　The domestic leader is likely to maintain the leading position in the long run backed by leading technologies and cost advantages under high sector concentration. The global CR3 of spherical silica micropowder and global CR5 of spherical alumina powder were 72% and 65% in 2021, respectively, indicating high sector concentration. Novoray’s spherical silica micropowder and spherical aluminum powder accounted for 12% and 5% in the global market. The Company has broken the monopoly of Japan in high-temperature spheroidizing technology and liquid fillers. Its production capacity of crystalline, fused, spherical silica micorpowder has exceeded 37kt/37kt/22kt in 2021, respectively, jumping to the first position in China. Novoray is likely to further ramp up its market share on the back of sufficient supply of raw materials, high-quality downstream customers and the expansion of overseas markets, and its profits will become more resilient, benefiting from the sustained decline in the proportion of direct material costs and the uptrend of the median price per unit of high-end functional ceramic fillers.
　　Industrialization of high-end products indicates the core competitiveness and creates the second growth pole. Novoray's existing products have been on a par with overseas counterparts by virtue of low particle size, low magnetic foreign matter (and high sphericity). The first driving force of its performance comes from increasing demand for spherical silica micropowder, and the second growth pole comes from mass shipment of high-end new products, such as submicron spherical silica powder, high α-phase spherical alumina powder and liquidity fillers, etc. In addition, the industrialization of other products homologated with the flame method, such as aluminum/silicon nitride micropowder, silica hollow spheres and micro and nano spherical silicon dioxide produced by chemical solutions, etc., is likely to drive the Company to grow further.
　　Potential risks: The localization of products missing expectations; sharp rise in raw material prices; fluctuations in fuel and power prices; disappointing penetration of functional ceramic fillers in downstream areas; the progress of construction projects falling short of expectations.
　　Investment recommendation: As the domestic leader in spherical silica micropowder, Novoray is likely to maintain robust growth by seizing opportunities from exponential sector growth, leveraging dual advantages in production capacity and technical know-how. We forecast its 2022E-2024E attributable net profit to be Rmb232mn/316mn/386mn, equivalent to EPS of Rmb2.70/3.68/4.49, respectively. We select Yoke Technology (002409.SZ), Estone Materials (688733.SH) and Sinocera Functional Material (300285.SZ) as comparable companies. With the comps valuation as a reference, considering the 2022E average PE of 44x for comparable companies mentioned above based on Wind consensus estimates, we assign 35x 2022E PE to derive a target market cap of Rmb8.2bn, implying a one-year target price of Rmb95 and initiate coverage with a “BUY” rating.
【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。

   【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。