The Zhitong Finance App learned that Guoxin Securities released a research report saying that according to Baichuan Yingfu data, as of April 8, the average price of viscose filament in the market was 43,500 yuan/ton, up about 500-800 yuan/ton from the beginning of the month and about 1,000 yuan/ton from the beginning of the year. The bank indicated that the supply and demand pattern has been optimized and is optimistic that domestic viscose filament prices will rise. Currently, the transaction price of viscose filament market is 43,500-44,000 yuan/ton. In the short term, it is still in the “gold three silver four” peak season in the garment and fabric industry. Combined with the upcoming graduation season, I am optimistic that the price of viscose filament will remain high, and there is still a possibility of further increase. It is recommended to focus on Xinxiang Chemical Fiber (000949.SZ) and Jilin Chemical Fiber (000420.SZ).

Incident: According to Baichuan Yingfu data, as of April 8, 2024, the average price of viscose filament market was 43,500 yuan/ton, up about 500-800 yuan/ton from the beginning of the month, and about 1,000 yuan/ton from the beginning of the year. On April 1, Xinxiang Chemical Fiber issued a price change notice stating that in view of the increase in demand for rayon driven by national trends and rising costs, the price of various types of Egret viscose filament in Xinxiang will increase by 1,000 yuan/ton from now on.

Guoxin Securities's views are as follows:

Supply side: The viscose filament industry is highly concentrated, and the increase in new production capacity is limited.

The viscose filament industry is highly concentrated, with a total global production capacity of about 250,000 to 280,000 tons, accounting for more than 75% of domestic production capacity, and only four domestic companies (Xinxiang Chemical Fiber, Jilin Chemical Fiber, Silya, and Hubei Jinhuan) produce it. The production process of viscose filaments is extremely polluting and consumes a lot of energy. In recent years, global viscose filament production capacity has continued to decline due to the advancement of environmental protection policies, the introduction of forest resource protection policies, rising energy prices, restrictions on new production capacity, and the withdrawal of production capacity in developed countries. In terms of operating rate, the operating rate of the viscose filament industry has increased steadily recently, basically between 80-90%, reflecting continued high market demand, and manufacturer growth to increase capacity utilization to cope with rapidly increasing market demand. Domestically, in principle, China will no longer build new conventional viscose staple fiber and filament projects, encouraging existing viscose fiber companies to eliminate backward production capacity through technological transformation. It is worth mentioning that Xinxiang Chemical Fiber plans to use bacteria in fiber manufacturing, which is expected to replace cotton wool and wood. It is an ideal raw material for sustainable use, has promoted the application of bacteria technology in the industrial field, and is of groundbreaking and pioneering significance.

Changes in the supply and demand pattern: Traditional demand is growing steadily, new domestic demand is rising, and the supply and demand pattern of viscose filaments has improved markedly recently.

In 2023, the domestic production capacity/output/apparent consumption/export volume of viscose filament was 23.5/20.7/11.7/901 thousand tons, respectively, showing a tight balance. In terms of domestic demand, in the past 2-3 years, domestic Hanfu/new Chinese clothing such as horse mask dresses have emerged, and downstream clothing sales have been booming, greatly increasing domestic market demand. The relationship between supply and demand for viscose filament continues to tighten. In the short term, with the arrival of “Golden Three Silver Four” and the graduation season, it is expected that national clothing such as horse masks will continue to be popular. The bank is optimistic that the price increase of viscose filament will continue in the short term. According to data from the Textile Raw Materials Network, a machine worth 400,000 to 500,000 can produce an average of 40 to 50 meters of horseface skirt fabric every day. Each jacquard machine consumes about 15 to 20 tons of viscose filament per year (the increase of 1,000 jacquard machines will correspond to the increase in annual demand of 15,000 to 20,000 tons of viscose filament). In terms of exports, China mainly exports directly and indirectly to India, the Middle East, etc., and overall export prices are still at historically high levels. In the past three years, demand for viscose filaments in India and other markets has been growing steadily: in 2021/2022/2023, China's exports to India were 3.51/5.00/52,000 tons respectively, up 100.82%/42.51%/4.44% year on year. On the one hand, viscose filament is a high-quality raw material for making traditional Indian clothing saris; on the other hand, the market prospects for Indian spinning mills to switch to blended yarn and chemical fiber yarn are relatively broad.

Investment advice: Optimizing the supply and demand pattern, optimistic about the rise in domestic viscose filament prices. Currently, the transaction price of viscose filament market is 43,500-44,000 yuan/ton. In the short term, it is still in the “Golden Three Silver Four” peak season in the garment and fabric industry. Combined with the upcoming graduation season, the bank is optimistic that the price of viscose filament will remain high, and there is still a possibility that it will rise further. It is recommended to focus on Xinxiang Chemical Fiber and Jilin Chemical Fiber.

Xinxiang Chemical Fiber: Viscose filament production capacity is 90,000 tons, and spandex production capacity is 200,000 tons. The price of spandex is running at the bottom. For every 1,000 yuan/ton increase in the price of viscose filament, the performance increased by about 70 million yuan. The bank expects the company's net profit to reach 2.45/3.13/347 million yuan respectively in 2024-2026, with earnings per share of 0.17/0.21/0.24 yuan/share, corresponding to current PE of 29.7/21.3/17.2 times; net assets per share are 3.88/4.09/4.24 yuan/share, respectively, corresponding to the current PB of 0.93/0.88/0.85 times, respectively. The bank believes that the reasonable valuation range for stocks is between 4.90-5.04 yuan, and the dynamic net market ratio in 2023 is 1-1.3X, and there is room for a 29%-33% premium compared to the current stock price. The company's operating conditions improved markedly in 2024, and the rating was raised to a “buy” rating.

Jilin Chemical Fiber: Viscose filament production capacity is 80,000 tons. For every 1,000 yuan/ton price increase, performance increases by about 60 million yuan. Furthermore, in recent years, the company has focused on expanding the carbon fiber business. The bank expects the company's net profit to reach 0.31/2.54/250 million yuan respectively in 2023-2025, with earnings per share of 0.01/0.10/0.10 yuan/share, corresponding to the current PE of 294.0/35.7/36.3 times, respectively. The bank believes that the reasonable valuation range for the stock is between 3.72-4.28 yuan, and the dynamic net market ratio in 2023 is 2-2.3X, and there is room for a 3.62%-19.16% premium compared to the current stock price. Covered for the first time, a “gain” rating was given.

Risk warning: Risk of downstream demand falling short of expectations, risk of trade policy fluctuations, risk of large fluctuations in product prices, risk of fluctuations in raw material supply stability, etc.