SINOMA SCIENCE&TECHNOLOGY(002080)：LEADER IN NEW MATERIALS WITH A DIVERSIFIED BUSINESS PRESENCE

　　Investment positives
　　We initiate coverage on Sinoma Science & Technology (Sinoma) with an OUTPERFORM rating and a target price of Rmb25.30, corresponding to 13.8x 2023e and 10.5x 2024e P/E (based on SOTP valuation).
　　Why an OUTPERFORM rating?
　　A cyclical growth stock with marginal earnings recovery;　valuation attractive. Sinoma positions itself as a new material platform with a broad and sophisticated business portfolio. It has a “2+1+N” business structure. Fiberglass and wind turbine blades are two pillars of revenue (combined revenue has exceeded 65% of the total each year since 2015), while separators for lithium-ion batteries (LiB) are the third main business. We anticipate that materials such as high-pressure gas cylinders and hydrogen storage cylinders may become growth drivers in the future.
　　We expect earnings of the firm’s main businesses to recover marginally from weak demand in 2022. As a cyclical growth stock with advantages in R&D and capital, and a focus on new materials, the current valuation is attractive, in our view.
　　Fiberglass: Earnings have largely bottomed out; expanding presence in high-end products and adopting multiple strategies　to control costs. We think earnings of the woven roving fiberglass business have largely bottomed out amid weak demand and low prices, and HoH demand may recover in 2H23. Also, Sinoma is expanding its presence in high-end products. Sales of fiberglass products for transportation, wind power and electronics sectors accounted for more than 60% of total sales of the fiberglass business in 2021 (more recent data has not been made public). The firm is cultivating its customer base and taking a lead in entering fast-growing new-economy sectors.
　　Net profit per tonne may recover mildly due to a multi-pronged approach to reduce costs, e.g., cold repairs for existing production lines and building new intelligent production lines.
　　Separators: A third main business; earnings resilience may not　be fully recognized. We estimate that sales volume and net profit of separators climbed 65% YoY and 448% YoY in 2022. We believe the　firm's earnings per sqm will be resilient in 2023, given cost reductions supported by economies of scale in the early stage of capacity expansion, and structural improvement from higher sales of coated films to leading clients. We expect unit earnings from separators to be relatively stable in 2023 and we see potential for sizable growth in sales volume.
　　Wind turbine blades: Earnings may improve with easing pressure from raw material cost and a shift towards larger turbines. We　believe with the easing of raw material cost pressure, the firm’s shift to making larger blades and QoQ improvement in production efficiency will improve earnings from wind turbine blades. Meanwhile, prices for onshore wind power equipment in competitive tenders are already in the bottom range compared to historical data. We estimate the gross margin for blades during 1H23 will recover 5-10ppt if prices remain largely stable. In the near term, sales volume and earnings may improve, in our view.
　　How do we differ from the market? We pay greater attention to the　upside for the earnings recovery of the firm’s blades, as well as the earnings improvement and growth potential of separators. As a new material platform company, we believe Sinoma has an attractive valuation.
　　Potential catalysts: Improved earnings per tonne of fiberglass; earnings recovery or installations of wind turbine blades beat expectations; LiB demand exceeds expectations.
　　Financials and valuation
　　We forecast EPS of Rmb1.83 in 2023 and Rmb2.42 in 2024, a CAGR of 8.0%. The stock is trading at 11.3x 2023e and 8.5x 2024e P/E. We initiate coverage of Sinoma Science & Technology with an OUTPERFORM rating and a TP of Rmb25.30, corresponding to 13.8x 2023e and 10.5x 2024e P/E, offering 22% upside.
　　Risks
　　Industry-wide expansion of fiberglass capacity beats expectations or demand recovery disappoints; disappointing progress in consolidating wind power business; sharper-than-expected price cuts for wind turbine blades; separator prices fall more than expected due to rapid capacity expansion.
【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。