HUALU-HENGSHENG(SH:600426) HTSC·2025-11-10 05:08Investment Rating - The investment rating for the company is maintained as "Buy" with a target price of RMB 31.50 [1][5]. Core Views - The report indicates that the demand for oxalic acid is expected to improve due to growth in the rare earth and lithium battery sectors, with a competitive landscape that is favorable [1]. - The company has a production capacity of 700,000 tons per year for oxalic acid and 300,000 tons per year for caprolactam, positioning it to benefit from the anticipated recovery in market conditions [1]. - The report highlights that the domestic competition for oxalic acid is relatively good, with the company holding a significant market share [3]. Summary by Sections Oxalic Acid Market Outlook - The apparent consumption of oxalic acid in China is projected to reach approximately 417,000 tons in 2024, representing a year-on-year increase of 87%. The rare earth separation and new energy sectors contribute significantly to this demand [2]. - The oxalic acid precipitation method is a mature technology for rare earth separation, which is expected to support continued demand growth as the strategic importance of rare earth resources increases [2]. Competitive Landscape - As of November 2025, the domestic oxalic acid production capacity is about 1.19 million tons, with a concentrated market where the company holds a 59% share [3]. - The company utilizes a gasification platform to co-produce dimethyl carbonate and oxalic acid, which offers cost and environmental advantages over traditional methods [3]. Caprolactam Market Dynamics - The caprolactam industry is undergoing a "de-involution" process, with companies discussing measures to reduce production by 20% and increase prices by RMB 100 per ton [4]. - The report anticipates that the supply-demand balance will improve, aiding in price recovery for various chemical products [4]. Financial Projections - The company is expected to achieve net profits of RMB 32 billion, RMB 45 billion, and RMB 54 billion for the years 2025 to 2027, respectively, with corresponding EPS of RMB 1.50, RMB 2.10, and RMB 2.56 [5][9]. - The target price of RMB 31.50 reflects a 15x PE ratio for 2026, considering the company's scale advantages and growth potential from new projects [5].