Investment Rating - The report initiates coverage on Beihua Co., Ltd. with a "Buy" rating and a target price of 28.44 RMB, based on a 36x PE valuation for 2026 [1][6][8]. Core Views - The core investment logic for Beihua Co., Ltd. is the simultaneous increase in both volume and price of its main product, nitrocellulose, driven by a tight supply-demand balance [1][19]. - The company is expected to benefit from a sustained high price for nitrocellulose due to three main factors: ongoing international geopolitical conflicts leading to strong military demand, the transition of European civilian products to military use creating a global supply-demand gap, and strengthened domestic capacity and environmental supply constraints [1][19]. - The expansion of nitrocellulose into environmentally friendly fireworks and other civilian applications is anticipated to significantly enhance the overall market space for nitrocellulose [1][19]. Summary by Sections Investment Highlights - Beihua Co., Ltd. has established a "three-pronged" business model centered around nitrocellulose, activated carbon, and special industrial pumps, with all three sectors showing industry-leading positions [2][28]. - The company is projected to see a recovery in performance in 2025, with expected net profit ranging from 2.20 to 2.90 billion RMB, representing a year-on-year growth of 877.22% to 1124.52% [2][24]. Nitrocellulose Business Growth - The growth in export volume and price of nitrocellulose is identified as the primary driver of the company's performance [3][19]. - The average export price of nitrocellulose is expected to rise from 1.46 million RMB per ton in 2021 to 3.85 million RMB per ton in 2025, with a peak price of 4.98 million RMB per ton anticipated in October 2025 [3][19]. - The company has established a strategic cooperation with a global leader in the packaging ink industry, which is expected to further benefit nitrocellulose pricing [3][19]. Financial Projections - The company is expected to achieve net profits of 2.49 billion RMB, 4.35 billion RMB, and 5.70 billion RMB for the years 2025, 2026, and 2027, respectively, with year-on-year growth rates of 978.63%, 74.74%, and 31.22% [6][10]. - The projected compound annual growth rate (CAGR) for nitrocellulose revenue from 2025 to 2027 is estimated at 18.40%, with a CAGR for gross profit at 43.87% [5][19]. Market Position - Beihua Co., Ltd. maintains a dominant position in the domestic nitrocellulose market with an estimated market share of approximately 39% in 2024 and a global market share of about 15% [16][34]. - The company has been a leader in the nitrocellulose industry for over 20 years, with a significant portion of its export revenue coming from nitrocellulose [16][34].