Non-net profit of $768 million was deducted in 2021, an increase of 22.49% year-on-year. During the reporting period, the company achieved revenue of 22.711 billion yuan, up 5.92% year on year; net profit of 867 million yuan, up 34.55% year on year; net profit after deducting non-net profit of 768 million yuan, up 22.49% year on year; and basic earnings per share of 0.12 yuan (0.09 yuan in 2020). The board of directors recommended paying a dividend of $0.0432 per share for 2021 ($0.0275 per share in 2020) to shareholders. In 2021, the company overcame the impact of adverse factors such as a sharp rise in raw material prices through technical reform, energy saving and consumption reduction, etc., to seize market opportunities, and achieve a significant increase in gross margin and pre-tax profit of major products over the same period last year.
Profits in the basic fertilizer and distribution sectors both increased year on year. 1) Basic fertilizer sector: In 2021, under the overall tight supply of products such as nitrogen, phosphorus, potassium, etc., the company relied on its own advantages and capabilities to continuously supply basic fertilizer raw materials to customers. In 2021, the company's basic fertilizer business achieved sales revenue of 14.13 billion yuan, an increase of 5.84% over the previous year; profit before tax was 600 million yuan, an increase of 18% over the previous year. Among them, the potash fertilizer business achieved sales volume of 1.69 million tons, the nitrogen fertilizer business achieved sales volume of 2.87 million tons, and the phosphate fertilizer business achieved sales volume of 1.94 million tons. 2) Distribution sector: In 2021, the company's distribution business continued to grow, R&D, production and marketing coordination efficiency improved, product structure continued to be adjusted, and gross margin increased continuously. The distribution business achieved sales revenue of 6.63 billion yuan in 2021, an increase of 1.84% over the previous year; profit before tax was 166 million yuan, an increase of 11% over the previous year. The company has a leading agricultural distribution network in China, forming a 6P marketing plan for the three staple foods. The share of core single products has increased dramatically, channel expansion continues to be diversified, and customers such as direct suppliers, large-scale planting companies, and special channels account for 60% of sales volume.
Sinochem's Fuling project is progressing in an orderly manner, speeding up the promotion of industrial quality and efficiency. According to the announcement, Sinochem's Fuling relocation project began in 2019. According to the relocation investment plan, the total investment of the project is 3,292 billion yuan, covering an area of more than 900 acres. The first phase of the project with an annual output of 200,000 tons of fine phosphate and supporting new special fertilizer will be built in Baitao Chemical Park. According to the company's annual report, by the end of 2021, the project had invested a total of 1,695 billion yuan, completing 78% of the overall image progress. According to the Chongqing Daily, the new plant is expected to be completed and put into operation in June this year. After the project is completed, the total annual industrial output value will reach 3.5 billion yuan, and the total profit and tax amount will exceed 300 million yuan.
Fully implement the integration of R&D, production and marketing, and drive high-quality sustainable development through innovation. In 2021, the company group established a “nutrient efficiency+soil health+biological agent” R&D system focusing on key directions such as weight loss and efficiency, soil health, etc., and at the same time fully implemented an integrated R&D, production and marketing mechanism to further accelerate the transformation efficiency of R&D results. The annual R&D results were converted into production and sales volume of more than 1 million tons for the first time. Among them, the proportion of differentiated products such as biofertiliser and specialty fertilizer increased markedly. The differentiated product “Lanlin-Guanwushuang” compound fertilizer field developed by the company and Syngenta's plant protection department performed excellently, achieving production and sales volume of nearly 30,000 tons; collaborating with the Chinese Academy of Agricultural Sciences to upgrade second-generation “Meilinmei” and “Linbao”, and other high-efficiency basic fertilizer products, with obvious effects of increasing production; the joint construction of the “National Engineering Research and Development Center for Cultivated Land Protection” with the Chinese Academy of Agricultural Sciences was approved by the NDRC. It was the company's first national R&D platform qualification.
Profit forecasting and investment ratings. Benefiting from the increase in the prosperity of the fertilizer industry and the increase in the company's profitability, we raised our profit forecast for the company. We expect the company's net profit for 2022-2024 to be 13.12 (+39.38%), 14.53 (new introduction) 3 and 16.55 billion yuan (new introduction), and EPS of 0.19, 0.21 and 0.24 yuan respectively. Referring to the valuation of comparable companies in the same industry, the company was given 7 times PE in 22 years, corresponding target price of 1.33 yuan. Based on the exchange rate of HKD to RMB 0.84, the corresponding target price was HK$1.58 (target price of HK$0.91 in the previous period, based on 7 times PE in 20, up 73.63%), maintaining the “superior to market” rating.
Risk warning: The progress of the capacity relocation project falls short of expectations, macroeconomic decline, downstream demand falls short of expectations, and the prices of raw materials and products fluctuate greatly