In the international community, chemical companies are generally divided into two major categories: bulk chemical companies and specialty chemical companies. The substantive difference between the two is that the technical barriers to entry and the competition in the industry are different. The competition for bulk chemicals lies in the cost advantage, and special chemical The product is more important in terms of technology and R&D capabilities. In terms of profitability of enterprises, the general profitability of special chemicals is higher than that of bulk chemicals.
Because the difference in entry barriers and market competition of bulk chemicals and special chemicals has brought about different levels of profit growth in the future, the market has given different valuation levels. The valuation of international specialty chemical companies is significantly higher than that of bulk chemicals companies. According to the valuation of the 2007 average earnings estimates, the average PE level of special chemicals in the US market reached 16.9 times, EV/EBITDA reached 9.0 times; the average PE level of US bulk chemicals was 11.6 times, and EV/EBITDA was 5.6 times.
In comparison with the current valuations of international companies, most of the chemical companies that we focus on have a large discount. Because China has a huge consumer market, the demand for domestic chemical products grows far more than that of developed countries. At the same time, due to the low investment cost, resource cost, and labor cost, Chinese companies have brought the company's comprehensive cost advantage. The long-term growth potential of Chinese companies in the future is greater than that of international companies.
Bulk Chemicals: After Hualu Hengsheng added diluted shares, PE was less than 9 times in 2007, and its future growth is clear. Maintain cautious recommendations. Shenyang Chemicals considers PE to be approximately 13 times in 2007 after being diluted. As the future earnings may exceed expectations, the potential for significant growth in 2008 and 2009 will be maintained, and “long-term recommendation†will be maintained. The valuation of Yuntianhua in 2007 is less than 9 times. The expansion of glass fiber production capacity is rapid and the gross profit is stable. It can make up for the decline in profitability of the urea business and there is room for future valuations.
Special Chemicals: Xingxin Materials had a PE of about 13.5 times in 2007, and Xinan's 2007 diluted PE valuation was about 14 times. There is ample room for improvement in 2008 results, and “prudent recommendations†are maintained. Shanxi's three-dimensional diluted PE level in 2007 was 13.8 times. The growth in 2008 was also relatively clear, and the “prudent recommendation†was maintained. The performance of the San Ai Fuli Group is relatively poor, but we believe that the growth of the main business in 2007 will be determined. If management incentives can be implemented, there should be room for upward valuation.
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