High-quality targets of NCA precursors, it is recommended to actively purchase – Fangyuan Convertible Bonds Subscription Value Analysis | Fees_Sina Finance_Sina.com

Investment Points

• event:On September 21, Guangdong Fangyuan New Materials Group Co., Ltd. (hereinafter referred to as “”Fangyuan shares”) announced that it will issue 642 million yuan of convertible bonds on September 23, 2022. The raised funds will be used to produce 50,000 tons of high-end ternary lithium battery precursors (NCA, NCM) and 1 10,000 tons of battery lithium hydroxide project (642 million yuan).

• The current valuation of pure debt is 79.43 yuan, and YTM is 4.35%.Fangyuan convertible bonds have a term of 6 years, a debt rating of A+, a face value of 100 yuan, and a coupon rate of 0.50%/0.60%/1.20%/2.60%/3.40%/3.50% for the first to sixth years respectively. The redemption price at maturity is 120% of the face value (including the interest in the last year), and the yield to maturity of ChinaBond 6-year A+ enterprise bond (2022/9/20) is 8.54% as the discount rate, and the value of the pure bond is 79.43 yuan, the YTM corresponding to pure debt is 4.35%, and the debt bottom protection is weak.

• The current parity is 89.10 yuan, and the additional terms are quite satisfactory.The conversion period is from March 29, 2023 to September 22, 2028. The initial conversion price is 18.62 yuan per share. As of the close of September 21, 2022, the stock price of Fangyuan shares is 16.59 yuan per share. The corresponding convertible bond parity is 89.10 yuan. The terms of downward revision of Fangyuan’s convertible bond conversion price are: 15/30, 85%, the terms of conditional redemption are: 15/30, 130%, and the terms of conditional sale are: the last two interest-bearing years, 30, 70 %, the revised terms are more general for investor protection.

• The total share capital dilution rate of this issuance is 6.7%.As of the date of the announcement of the issuance of convertible bonds, the company’s total share capital was 512 million shares, with a total of 381 million shares in circulation. Based on the initial conversion price, the dilution rate of all conversion of convertible bonds to the company’s total share capital was 6.7%. The dilution rate is 9.0% and the dilution rate is low.

• The listed price of Fangyuan Convertible Bonds is expected to be between 108.94-114.74 yuan.Based on the comparable targets currently in the market, it is expected that the premium rate of Fangyuan Convertible Bonds on the first day of listing is about 25%, and the corresponding listing price is between 108.94-114.74 yuan.

• It is estimated that the original shareholder’s priority placement ratio is 71.1%, and the probability of winning the lottery online is between 0.0031% and 0.0046%.As of the 2022 interim report, the company’s actual controller, Luo Aiping, holds 14.95% of the total share capital, and the top ten shareholders hold 55.40%. As of now, no shareholder has committed to participate in the preferential placement. Assuming that 80% of the top ten shareholders participate in the preferential placement, and 60% of the other shareholders participate in the preferential placement, it is estimated that the original shareholder’s placement ratio is 71.1%, and the placement amount is 456 million yuan. The remaining amount after the original shareholder’s placement is 186 million yuan. Assuming that 500 households are the center of the number of online users participating in the subscription, each household subscribes for an average of 1 million yuan, and the probability of winning the online lottery is estimated to be between 0.0031% and 0.0046%.

• To sum up, the current parity of Fangyuan convertible bonds is lower than the face value, and the value of pure bonds is lower. Fangyuan Co., Ltd. is a leading manufacturer of NCA cathode material precursors for lithium batteries in China. Based on the comprehensive utilization of non-ferrous metal resources, with modern separation technology and functional material preparation technology as the core, it produces NCA/NCM precursors and nickel battery cathode materials. Spherical Nickel hydroxide. The company has established a complete industrial chain from nickel-cobalt raw materials to ternary cathode material precursors and nickel-battery cathode materials, which has a high allocation value. It is recommended to actively participate in the first-level subscription.

• risk warning:Major customers are highly dependent; upstream raw material prices fluctuate; operations are less than expected; third-party data is inaccurate.

On September 21, Guangdong Fangyuan New Materials Group Co., Ltd. (hereinafter referred to as “Fangyuan Shares”) announced that it will issue 642 million yuan of convertible bonds on September 23, 2022. It will be used for the annual production of 50,000 tons of high-end ternary lithium battery precursors (NCA, NCM) and 10,000 tons of battery lithium hydroxide projects (642 million yuan). Below we briefly analyze the subscription value of Fangyuan Convertible Bonds for investors’ reference.

one, Analysis of basic terms of convertible bonds

The current valuation of pure debt is 79.43 yuan, and YTM is 4.35%.Fangyuan convertible bonds have a term of 6 years, a debt rating of A+, a face value of 100 yuan, and a coupon rate of 0.50%/0.60%/1.20%/2.60%/3.40%/3.50% for the first to sixth years respectively. The redemption price at maturity is 120% of the face value (including the interest in the last year), and the yield to maturity of ChinaBond 6-year A+ enterprise bond (2022/9/20) is 8.54% as the discount rate, and the value of the pure bond is 79.43 yuan, the YTM corresponding to pure debt is 4.35%, and the debt bottom protection is weak.

The current parity is 89.10 yuan, and the additional terms are quite satisfactory.The conversion period is from March 29, 2023 to September 22, 2028. The initial conversion price is 18.62 yuan per share. As of the close of September 21, 2022, the stock price of Fangyuan shares is 16.59 yuan per share. The corresponding convertible bond parity is 89.10 yuan. The terms of downward revision of Fangyuan’s convertible bond conversion price are: 15/30, 85%, the terms of conditional redemption are: 15/30, 130%, and the terms of conditional sale are: the last two interest-bearing years, 30, 70 %, the revised terms are more general for investor protection.

There is a small amount of pledge in the company’s equity.As of the 2022 interim report, the company’s actual controller Luo AipingheBerterryThe pledged shares held by New Materials Group Co., Ltd. accounted for 14.95% and 9.39% of the total share capital respectively, and the pledged shares accounted for 0.59% in total, and the pledge risk was low.

The total share capital dilution rate of this issuance is 6.7%.As of the date of the announcement of the issuance of convertible bonds, the company’s total share capital was 512 million shares, with a total of 381 million shares in circulation. Based on the initial conversion price, the dilution rate of all conversion of convertible bonds to the company’s total share capital was 6.7%. The dilution rate is 9.0% and the dilution rate is low.

two,Investment Subscription Advice

1）As of the close on Tuesday, September 20, with reference to parity and debt rating comparable targetsShenke Convertible Bond、Hyflux Convertible BondandHuicheng Convertible Bondthe conversion premium rates were 88.49%, 90.54% and 86.11%.

2）As of the close on Tuesday, September 20, with reference to the power equipment sector (Shenwan first-class industry)Jiayuan Convertible Bond、Kohli convertible bondsandTianna Convertible Bondthe conversion premium rate was 72.15%, 66.38% and 76.09%.

3）As of the close on Tuesday, September 20, with reference to recently listedRongtai Convertible Bond、Kelan Convertible BondsandSky Arrow Convertible Bondsthe conversion premium rate was 2.03%, 34.45% and 48.25%.

4）At present, the valuation of the underlying stock is at the 9% quantile since its listing, at the bottom of the valuation. The annualized volatility in the past year is 67.8%, and the stock price is highly elastic.

Comprehensive comparable targets,It is expected that the premium rate of Fangyuan Convertible Bonds on the first day of listing will be around 25%, corresponding to the listing price of RMB 108.94 – RMB 114.74.

It is expected that the original shareholder’s preferential allotment ratio will be 71.1%.As of the 2022 interim report, the company’s actual controller, Luo Aiping, holds 14.95% of the total share capital, and the top ten shareholders hold 55.40%. As of now, no shareholder has committed to participate in the preferential placement. Assuming that 80% of the top ten shareholders participate in the preferential placement, and 60% of the other shareholders participate in the preferential placement, it is estimated that the original shareholder’s placement ratio is 71.1%, and the placement amount is 456 million yuan.

It is estimated that the proportion of online investors’ allotment is 28.9%, and the probability of winning the lottery online is between 0.0031% and 0.0046%.The remaining amount after the original shareholder’s placement is 186 million yuan. Assuming that 500 households are the center of the number of online users participating in the subscription, each household subscribes for an average of 1 million yuan, and the probability of winning the online lottery is estimated to be between 0.0031% and 0.0046%.

three,Fundamental Analysis of Underlying Stocks

1. NCA precursor leader, in-depth cooperation with high-quality customers to help development

The main business of Fangyuan Co., Ltd. is the research and development, production and sales of lithium battery ternary cathode material precursors and nickel battery cathode materials.Its research and development products are the core upstream materials for the manufacture of lithium batteries and nickel batteries, and the downstream of the industrial chain faces the fields of new energy vehicle power batteries, power tools, energy storage equipment and electronic products.

NCA leader, the layout of industrial chain integration.From 2018 to 2020, the export volume of the company’s NCA ternary precursors ranked first in China. At the same time, a complete industrial chain has been established from nickel-cobalt raw materials to ternary cathode material precursors and nickel battery cathode materials. In 2021 and the first half of 2022, Fangyuan’s NCA operating income will be 1.326 billion yuan and 763 million yuan, accounting for 62.10% and 80.57% of the total operating income, respectively.

The demand for NCA ternary precursors is increasing, and the industry is booming.Ternary precursors are key components of products such as new energy vehicles and power batteries. With the spread of the concept of “carbon neutrality”, the demand for ternary cathode materials for new energy raw materials is also increasing. Shipments of cathode materials increased from 87,000 tons to 430,000 tons from 2017 to 2021, and shipments in the first half of 2022 increased by 51% year-on-year.

The company has in-depth cooperation with high-quality customers, and the top five customers account for more than 80% of the revenue.The sales revenue of Fangyuan’s top five customers accounted for 83.51%, of which Panasonic was the main customer, accounting for 44.49%. At the same time, the company began to purchase ternary precursor raw materials from Panasonic in 2021, and Panasonic has also become the first supplier of Fangyuan shares, accounting for 37.26% of the purchase amount. The mutual transmission of the two products is conducive to the stability of sales channels and raw material sources. .

2. The net profit attributable to the parent has improved month-on-month, and the gross profit margin has room for recovery

In 2022, the revenue will maintain the growth level, and the net profit attributable to the parent company will be improved.In 2021, benefiting from the boom in the downstream new energy vehicle industry, driving the rapid development of the power battery industry, the market demand for ternary precursors is strong, the company has successfully expanded downstream customers, sales of ternary precursor products have increased, and operating income has increased by 108.46% year-on-year. In 2022, due to the repeated impact of the epidemic and the uncertainty of the price of LME nickel futures on the London Metal Exchange brought about by the “Russian-Ukrainian conflict”, the upstream raw material procurement of enterprises and the demand of downstream customers will be affected to a certain extent, and the growth rate of operating income will decrease. An increase of 4.76%.

The net profit attributable to the parent company of the company fell sharply in the first half of 2022, down 95% year-on-year.The main reason is that during the reporting period, the share-based payment amortization of the equity incentive plan implemented in 2021 increased by 41 million yuan, and the gross profit margin decreased due to comprehensive factors such as the increase in the price of main auxiliary materials such as sulfuric acid liquid alkali. In the second quarter of 2022, the net profit attributable to the parent company was 50 million yuan, which was an improvement from -02 million yuan in the first quarter.

As raw material prices fall, gross profit margins may pick up.The company’s gross profit margin from 2019 to the first half of 2022 continued to decline, from 20.28% to 11.19%. The main reason for the decline in gross profit margin in 2021 is due to the increase in the price of raw materials such as LME nickel and cobalt, and the accompanying increase in production costs. At the same time, the two-way procurement cooperation with Panasonic starting in 2021 will also have a negative impact on the gross profit margin of NCA ternary precursors. In the future, the reduction in the reliance on raw material procurement and the decline in raw material prices may bring about a recovery in gross profit margin.

3.Proper cost control and good cash flow

In 2021, due to the expansion of the company’s scale, the increase in personnel compensation, business promotion, and R&D investment will lead to an increase in expenses during the period, of which administrative expenses/selling expenses and R&D expenses will increase by 30.58%, 42.36% and 25.21% year-on-year respectively. However, the expansion of the company’s scale has brought about a scale effect, and the operating income has increased by 108.46% year-on-year, resulting in a steady decline in various expense ratios.

The company’s solvency has declined, and its cash flow situation has improved。In the first quarter of 2019-2022, the company’s current ratios were 2.73, 2.12, 1.6, and 1.44, respectively, and the quick ratios were 1.35, 0.94, 0.73, and 0.55, both of which declined and were lower than the ratios of 2:1 and 1:1, respectively , the company’s overall solvency has declined.

To sum up, the current parity of Fangyuan convertible bonds is lower than the face value, and the value of pure bonds is lower. Fangyuan Co., Ltd. is a leading manufacturer of NCA cathode material precursors for lithium batteries in China. Based on the comprehensive utilization of non-ferrous metal resources, with modern separation technology and functional material preparation technology as the core, it produces NCA/NCM precursors and nickel battery cathode materials. Spherical Nickel hydroxide. The company has established a complete industrial chain from nickel-cobalt raw materials to ternary cathode material precursors and nickel-battery cathode materials, which has a high allocation value. It is recommended to actively participate in the first-level subscription.

4. Risk Warning

risk warning:The development of the downstream new energy vehicle industry fluctuates; the epidemic affects the commissioning of new projects; third-party data is inaccurate.

Equity Research:High-quality targets of NCA precursors, it is recommended to actively purchase – Fangyuan Convertible Bond Subscription Value Analysis

External release time:September 22, 2022

Report issuing agency:Zhongtai Securitiesgraduate School

Participant information:

Zhou Yue | SAC No.: S0740520100003 | Email: [email protected]

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