First coverage
Investment highlight
Covering Hubei Yihua (000422) for the first time, it gives the industry a rating of outperforming industry, with a target price of 19.80 yuan, corresponding to the price-to-earnings ratio of 6.5amp 5.9x in 2022. The reasons are as follows:
The company is one of the leaders in chemical fertilizer and chlor-alkali industry, actively seeking transformation and upgrading. As of 1H22, the company has a production capacity of 1.56 million tons of urea, 1.26 million tons of diammonium phosphate, and 680000 tons of PVC84 and caustic soda in the chemical sector. After the one-time major loss caused by the accident in 2017, the company gradually increased the disposal of non-performing assets, focusing on the transformation and upgrading of the three traditional industries of coal chemical industry, phosphorus chemical industry and salt chemical industry, while laying out new materials, high-end chemicals and other industries.
Food prices are high and the boom in the chemical fertilizer industry is expected to continue. Under the influence of long-term global inflation, high energy prices and short-term conflict between Russia and Ukraine, high food prices have led to strong demand for chemical fertilizer, limited production expansion on the supply side, and the fertilizer business cycle is expected to continue. The company's diammonium phosphate is equipped with 300000 tons of phosphate rock and urea with synthetic ammonia, which is dominated by the air head route, and the cost advantage is expected to be highlighted.
The new entry barrier of chlor-alkali industry is high, and the advantage of company integration is remarkable. The demand for caustic soda is driven by alumina and long-term demand for new energy and new infrastructure, and we expect steady growth in the future. Although PVC is under pressure on short-term profits, due to the high barriers to new entry of the core raw material calcium carbide and less new production capacity in the industry, we believe that PVC profits are expected to recover with the gradual improvement in downstream real estate demand. The chlor-alkali production capacity of the company has a high matching rate of calcium carbide and the main base is located in the northwest region. It is expected to rely on the resource endowment of the western region and the supporting advantages of the industrial chain to create strong competitiveness of chlor-alkali products.
Strong and strong joint layout of new energy materials to expand the company's growth space. The company and Ningde Times subsidiary jointly set up Yichang Bang Popularization New Materials, with a planned production capacity of 300000 tons of ferric phosphate and 200000 tons of nickel sulfate; Stanley plans to carry out in-depth cooperation with Stanley in the fields of phosphorus chemical industry and new energy materials, jointly invest in the construction of 200000 tons of iron phosphate and supporting products, which is expected to expand the company's growth space in the future.
What is the biggest difference between us and the market? The market believes that under the reverse turn of the phosphorus chemical industry, we believe that the high grain prices on the demand side and the limited addition of phosphate rock at the supply side, and the business cycle is expected to be maintained; the market believes that iron phosphate is under pressure from fierce competition in the future. we believe that the company has the advantages of phosphate rock supporting and binding downstream customers in advance, and the future growth is highly certain.
Potential catalysts: fertilizer boom continued, real estate growth exceeded expectations, ferric phosphate and ferric sulfate were put into production.
Profit forecast and valuation
We estimate that the EPS of the company in 2022-23 is 3.05,3.35 yuan, respectively, and the CAGR is 38.3%.
The company's current share price corresponds to a 23-year price-to-earnings ratio of 4.9amp 4.5x. The company's chemical fertilizer and caustic soda products have a high degree of prosperity, and the planning of new materials such as iron phosphate is expected to contribute to long-term growth, giving "outperforming industries" for the first time.
Rating. The relative valuation method is used to give the target price 19.8 yuan, corresponding to the price-to-earnings ratio of 6.5max / 5.9x in 2022 / 23, which is 32% higher than the current price / earnings ratio.
Risk.
The prices of PVC, diammonium phosphate and urea were lower than expected, the price of phosphate rock increased, and the progress of iron phosphate was not as expected.