He who strives for the best is the one who strives for the best.
China's heart-to-heart chemical fertilizer adheres to the strategy of giving priority to fertilizer and developing fertilizer at the same time, constantly laying a solid foundation. At present, the three major bases of the Central Plains, Northwest and South China have supported each other and radiated the layout of the whole country. We expect the company's homing net profit to reach 1.29 billion and 1.56 billion in 21 and 22 years, up 270% and 21% year-on-year. We give the company a target price of HK $9.3, corresponding to a price-to-earnings ratio of 7.0 times forecast 21-22 earnings and 5.8 times forecast earnings, which is 60% higher than the current price and maintains a buy rating.
Summary of the report
Continue to consolidate the foundation, has completed the layout of the three major bases, and entered the harvest period. The company, formerly known as Henan Xinxiang Chemical Fertilizer General Plant, was founded in 1969, put into production in Xinjiang in 2015, and put into production in Jiangxi in 2021. At present, the strategic layout of the three major bases of the Central Plains, Northwest and South China has been formed to support each other and radiate the whole country. By the first half of 2021, Xinlianxin has an annual production capacity of 2.6 million tons of urea, 2.65 million tons of compound fertilizer, 600000 tons of dimethyl ether and 120000 tons of melamine. In terms of production capacity, the urea production capacity of Xin Lianxin ranks among the top three in China and the top five in China for compound fertilizer. We believe that every time the performance of China Xinlianxin Chemical Fertilizer and the highlight moment of the stock price are related to the completion of the base. Jiujiang Base went into production on February 8, 21, relying only on more than four months of operation. Jiujiang Base in Jiangxi accounted for 40% of the net profit in the first half of the year, and the profit contribution was higher than that of Henan and Xinjiang bases. Jiujiang Base has a great driving force for the development of Xinlianxin.
The performance inflection point has appeared, and the high performance growth in the past 21 years is a certainty. In the first half of the year, the company's revenue was 7.57 billion yuan, an increase of 53% over the same period last year; net profit was 650 million yuan, an increase of 258% over the same period last year; and earnings per share were 55.1 points, far exceeding expectations in the first half of the year. We believe that the company's performance in 21 and 22 years can maintain high growth:
First, the prices of core products have risen steadily. The price of urea has risen from 1800 yuan / ton at the beginning of the year to 2700 yuan / ton at present, an increase of 50%. The price of melamine has risen from 6600 yuan / ton at the beginning of the year to 13000 yuan / ton now, an increase of nearly 100%. We believe that the prices of urea and melamine are already high and are expected to fluctuate at high levels in the second half of the year. Second, capacity optimization and product expansion. By the end of October, the upgrading and transformation of Xinxiang No. 2 and No. 3 plants will be completed, which can provide the company with 1 million tons of advanced urea capacity. At the end of the year, the company has 100000 tons of DMF and 200000 tons of hydrogen peroxide put into production.
In the long run, the debt ratio will gradually decrease and seek steady development. During the 13th five-year Plan period, Xinlianxin countercyclical expansion, invested in the construction of bases in Jiangxi and Xinjiang, high capital expenditure, asset-liability ratio continued to rise. During the 14th five-year Plan period, the company has no large base project construction plan, only needs to expand and upgrade the existing factory, so the peak of heart-to-heart capital expenditure has passed, the future cash flow will become stronger, the debt ratio will continue to decrease, and the dividend payout rate is expected to increase.
Target price is HK $9.3, buy rating. We expect the company's homing net profit to reach 1.29 billion and 1.56 billion in 21 and 22 years, up 270% and 21% year-on-year. Finally, we give the company a target price of HK $9.3, corresponding to a price-to-earnings ratio of 7.0 and 5.8 times for 21-22, respectively, which is 60% higher than the current price and maintains a buy rating.
Risk tips: policy risk; price war; epidemic risk