Main points of investment
Event: Cofco Sugar achieved revenue of 11.9 billion yuan (year-on-year + 6.5%), net profit of 630 million yuan (year-on-year + 39.6%) and non-net profit of 580 million yuan (+ 40.7%) in the first half of 2022. In the second quarter, the company's revenue was 7.03 billion yuan (year-on-year + 1.2%), net profit was 400 million yuan (year-on-year + 60.0%), and non-net profit was 380 million yuan (year-on-year + 55.4%).
Sugar prices rose first and then fell in the first half of the year, and the profitability of Q2 increased year on year. (1) the overall volatility of domestic and foreign sugar prices rose in the first half of the year, with a sharp correction in the commodity market as a whole since June. The average quarterly spot price of Q1 and Q2 willow sugar is about 5761 and 5936 yuan / ton, and the average international spot price of Q1 and Q2 raw sugar is 18.3 and 19.4 cents / lb, respectively, compared with the same period last year. The import profit outside the quota of Brazilian sugar dropped to about-700 yuan.
(2) the company's sugar sales are expected to increase slightly in the first half of the year compared with the same period last year, with a gross sales margin of 11.20% (year-0.24pct) and a single Q2 gross margin of 11.21% (year-on-year + 0.61pct). Benefiting from the company's strong business research and development ability and the ability to control multiple sugar sources, the company takes advantage of the low price to build inventory, and is expected to maintain a steady increase in trade sugar sales in the first half of the year and improve its profitability compared with the same period last year. It is estimated that the gross profit margin of home-grown sugar has also improved due to the rise in sugar prices and the loss of value. Due to the continued upside-down of domestic sugar prices and non-quota import costs, the volume of processed sugar is expected to be under pressure in the first half of the year.
(3) in terms of expenses, the rates of sales, management and financial expenses of the company in the first half of the year were 1.81%, 2.14% and 0.60% respectively, compared with-1.22pct,-0.07 pct and-0.19pct. Among them, sales expenses decreased by 120 million yuan compared with the same period last year, and the obvious decline in sales expense rate was mainly due to the adjustment of freight to operating costs. In addition, the total profit and loss of the company's investment income and fair value changes in the first half of the year totaled 68.5 million yuan, an increase of 34.92 million yuan over the same period last year.
Strategic layout of sugar refining business, steady expansion of production capacity. In recent years, the company focuses on the refined sugar business, which currently has a refined sugar production capacity of 1.9 million tons, ranking first in the industry. in addition, Tangshan Sugar Phase II production capacity of 150000 tons has begun construction and is expected to reach production in 2023. At that time, the company's sugar refining capacity will exceed 2 million tons, accounting for more than 30% of domestic sugar imports. In the future, the sugar refining business may further smooth the profit fluctuation caused by the sugar price cycle, which will lead to the steady growth of the company's performance.
Consumption needs to be restored, and domestic sugar prices are weak. (1) internationally, under the influence of interest rate hikes by the Federal Reserve and worries about the economic recession, the global commodity market has generally fallen since June. After the fall in crude oil prices, the price of hydrous ethanol sugar in Brazil has fallen rapidly, and at present, the sugar production ratio of sugar cane has risen to an all-time high. Brazil's production reduction in the new crushing season may be reduced.
Although India's sugar exports may shrink during the next crushing season, and the impact of climate anomalies on global sugar production is still uncertain, the center of international sugar price shocks is expected to continue to move downwards in the second half of the year under the disturbance of macro adverse factors.
(2) on the domestic side, the production of beet sugar has been greatly reduced due to the extreme weather during the 22nd squeeze season. National sugar production is expected to be 9.56 million tons (10% year-on-year), and the 22max 23 crushing season may return to 10.35 million tons. In addition, imports of sugar from January to July were 2.04 million tons, down 420000 tons from the same period last year, but low-tariff syrup and sugar premix imported a total of 676000 tons, an increase of 406000 tons over the same period last year. On the consumption side, affected by the epidemic, the domestic demand for low-cost sugar and syrup increased, and the sugar demand was sluggish in the peak season. The cumulative production and sales rate of domestic sugar in the 21max 22 pressing season to the end of July was 70.8%, compared with the same period last year.-2.9pct, the new industrial inventory of sugar is still high in recent years. The overall supply of domestic sugar is adequate, but it has fallen below the cost of domestic production and import, and the decline is expected to follow the fluctuation of the raw sugar range in the second half of the year.
Investment suggestion: the company is the largest sugar import trader in China, and the annual sugar import accounts for more than 40% of the total domestic imports. Its advantages of polysaccharides and the current procurement and sales model give the company a strong risk resistance, with the increase of trade volume, the company is expected to maintain steady growth in the future. We adjust our profit forecast and estimate that the company's EPS from 2022 to 2024 will be 0.40,0.48,0.57 yuan respectively, based on the closing price on September 1, 2022, corresponding to the PE of 19.0,15.8,13.4 times, maintaining the "prudent overweight" rating.
Risk tips: policy changes, natural disasters, sugar price fluctuations, crude oil price fluctuations, exchange rate fluctuations.