The company is the leader of deep processing of corn in China.
The company, which belongs to Cofco Group, is the only enterprise in China whose business covers biomass energy, biomass materials, food raw materials and ingredients, and is also one of the largest and advanced corn processing enterprises in China. At present, the company's main business is the production and sales of fuel ethanol, edible alcohol, starch, starch sugar, citric acid, monosodium glutamate, polylactic acid, modified starch and by-products. In terms of revenue composition, from 2019 to 2020, the company's income from fuel ethanol and starch accounted for about 45% and 20% respectively, which is the main source of income for the company; in terms of gross profit composition, the gross profit ratio of fuel ethanol and starch is about 55% and 20% respectively, which is the main source of profit for the company.
Fuel ethanol industry has a broad space, short-term pressure does not change the medium-and long-term trend for the better
After years of development, China has become the third largest fuel ethanol producer in the world, but the output accounts for only about 3%, which has a large gap with the United States and Brazil. We believe that in the short term, demand for fuel ethanol will shrink in 2020 under the impact of the COVID-19 epidemic and shrinking domestic gasoline consumption. However, in the medium and long term, there are broad prospects for the development of fuel ethanol in China. The annual gasoline consumption in China is about 130 million tons. According to the specific requirements for the overall promotion of fuel ethanol in 2020 put forward in the implementation Plan for expanding the production of Biofuel ethanol and popularizing the use of vehicle ethanol gasoline, the demand for fuel ethanol in China is expected to reach 13 million tons, while the current output of fuel ethanol in China is only about 3 million tons, resulting in a large gap between production and demand. There is a broad space for growth in the future.
M & An opens the market space, and the prospect of biodegradable materials is promising.
In 2018, the company acquired its 100% stake in biochemical energy, 100% stake in biochemistry and 100% stake in Huali Investment by issuing shares. The scientific and technological deep processing capacity of Cofco will be greatly increased, of which the fuel ethanol production capacity will reach 1.35 million tons (of which the original capacity is 750000 tons + biochemical energy 600000 tons), starch production capacity will reach 1.65 million tons, starch sugar production capacity will reach 900000 tons, and feed raw material production capacity will reach 2 million tons. This acquisition has greatly increased the company's deep processing capacity and further consolidated the company's leading position in the industry.
In addition, the company has been deeply engaged in the field of biodegradable materials for more than 15 years, and has invested in the construction of a lactide (intermediate for the production of PLA) production line with an annual capacity of 30,000 tons / year in Yushu City, Jilin Province. The company not only wants to open up the whole industry chain production process from renewable plant resources such as corn to bio-based degradable materials (PLA and PHA), but also to produce high-end, high value-added downstream products, including modified special materials including PLA/PHA blend fibers, which will be the main high-end products of COFCO Technology in the future. We believe that biodegradable materials are the future development direction, which is strongly supported by national policies. At present, the company has broken through the main technical bottleneck of industrial production of lactide (the intermediate of biodegradable biomaterial PLA). Lactide and PLA are high value-added products downstream of starch, which will further enhance the overall competitiveness and profitability of Cofco science and technology after being formally put into production.
Investment suggestion
We estimate that from 2021 to 2023, the operating income of the company will be 252.09x31.905 billion yuan respectively, and the net profit will be 1.782 billion yuan, corresponding to the corresponding EPS of 0.59 yuan, and the closing price of 11.59 yuan on November 23, 2021, will correspond to the PE of 20,000,1512X, respectively, and the corresponding net profit will be 1.782 billion yuan, respectively, corresponding to the corresponding PE of 0.59 yuan, 0.59 yuan, respectively, on November 23, 2021. Considering the large space for the development of biodegradable materials, after lactide and PLA are officially put into production, the company's overall competitiveness and profitability will be greatly increased, covering for the first time and giving a "buy" rating.
Risk hint
COVID-19 epidemic risk, oil price fluctuation risk, corn price increase too big impact.