Shengquan Group(SH:605589)2025-05-25 14:09Investment Rating - The report initiates coverage on Shengquan Group with a "Buy" rating, indicating a positive outlook on the company's growth potential and valuation [1][7][4]. Core Insights - Shengquan Group is positioned as a unique player in the AI and EV materials sector, leveraging its advanced material platform to drive new growth opportunities. The company is expected to achieve a net profit CAGR of 28% from 2024 to 2027, significantly improving from a 0% CAGR from 2020 to 2024 [1][9][11]. - The report highlights the strong growth potential in the new materials segment, particularly in electronic and battery materials, driven by the rising demand for AI servers and electric vehicle batteries. The expected CAGR for these materials is projected at 52% from 2024 to 2027 [9][29][11]. Summary by Sections New Materials - Shengquan is one of the few manufacturers globally capable of mass-producing polyphenylene oxide (PPO) and other high-speed resins, which are critical for printed circuit boards (PCBs) in AI servers. The potential market size for PPO is expected to reach 4 billion RMB by 2027, doubling from 2024 [2][45]. - The company is also focusing on porous carbon materials for silicon-carbon anodes in battery applications, with a projected market size of 10 billion RMB by 2030, representing a 60-fold increase from 2024 [2][11]. Bulk Materials - Shengquan has maintained a leading market share of 20-30% in synthetic resin, particularly in phenolic and furan resins, with a forecasted gross profit growth of 10% annually. The company is expected to benefit from the recovery of resin prices and increased production capacity [3][10][25]. Valuation - The current stock price corresponds to an 18x PE ratio for 2025E, with a target price set at 36.00 RMB, indicating a 35% upside potential. The valuation is supported by a DCF analysis suggesting a 25x PE for 2025E [4][26][11]. Financial Projections - Revenue projections show a steady increase from 9.6 billion RMB in 2022 to 20.0 billion RMB by 2029, with net profit expected to rise from 703 million RMB in 2022 to 2.3 billion RMB by 2029 [5][11]. - The report anticipates a significant improvement in profitability, with the gross margin for new materials expected to rise from 14% in 2024 to 41% by 2027 [9][11][29].