LIANHE CHEMICAL TECHNOLOGY(002250):1Q22 RESULTS IN LINE;WATCH MEDIUM-TO-LONG-TERM GROWTH

类别:公司 机构:中国国际金融股份有限公司 研究员:Yaping XIAO/Xiongwei JIA/Xiaofeng QIU 日期:2022-05-06

  1Q22 results in line with our expectations

    Lianhe Chemical Technology announced 1Q22 results: Revenue was Rmb1.69bn, up 18.5% YoY (down 8.3% QoQ), attributable net profit totaled Rmb74.12mn, down 11.7% YoY (up 95.6% QoQ), and recurring attributable net profit fell 27.6% YoY to Rmb53.19mn, in line with our expectations. We attribute the decline in profit to higher raw material prices. In 1Q22, gross margin (GM) was 25.8%, down 3.8ppt YoY (up 0.1ppt QoQ) and net margin was 4.4%, down 1.5ppt YoY (up 2.3ppt QoQ). We see an upside in GM.

      Trends to watch

      We remain upbeat about CDMO growth potential. In 2021, the firm integrated its medical business and issued an employee stock ownership plan (ESOP) in its medical subsidiary to motivate employees. Lianhe plans to build a contract research organization (CRO) platform to meet the needs of new clients. We expect the firm will cover the entire pharmaceutical contract outsourcing (CXO) service value chain, from R&D to commercialized production. We remain upbeat about the long-term growth potential of the contract development and manufacturing organization (CDMO) business.

      Agrochemical business likely to improve. Raw material price hikes weighed on the GM of the agrochemical business. Higher raw material prices may be passed on to the downstream, in our view, and the GM of the agrochemical business may recover. Production resumption of the firm’s plant in northern Jiangsu is progressing smoothly.[1] The firm’s UK bases are still in the investment period. We expect their losses to narrow gradually as new projects progress and the firm’s earnings improve.

      We are upbeat about the long-term outlook for functional chemicals. The functional chemicals business is pressured by price rises in raw materials, and the historically low prices of 2-chlorobenzonitrile and other products. Lianhe has increased its investment in functional chemicals.

      Its 20,000t/yr lithium hexafluoroarsenate and 10,000t/yr midodisulfuryl fluoride lithium salt projects are undergoing environmental impact assessments. We expect the firm to leverage its technological advantages to explore the manufacture of lithium-ion battery (LiB) products to unlock the growth potential of functional chemicals. We are upbeat about the long-term growth prospects for this segment.

      Financials and valuation

      Our 2022 and 2023 earnings forecasts are unchanged. The stock is trading at 24.1x 2022e and 16.5x 2023e P/E. We maintain OUTPERFORM and our TP of Rmb19.02 (36.5x 2022e and 25.0x 2023e P/E), offering 51.7% upside.

      Risks

      Disappointing development of pharmaceutical intermediates and/or resumption of agrochemical business; progress in new functional chemicals projects slower than expected.