Investment suggestion

We expect the company to make a profit of-0.23 yuan (down 174.5%) and-0.13 yuan (down 126.7%) in 2013-14, downgrading to "neutral".

Reasons

In the first three quarters, the company achieved operating income of 474 million yuan, down 37.41% from the same period last year; the net profit of shareholders belonging to the parent company was-158 million yuan, and earnings per share was-0.20 yuan, which was lower than we expected.

Although the demand of ethylene glycol industry is still strong and the price remains high, the substantial increase in fixed cost of Tongliao gold coal will affect the profitability of ethylene glycol at this stage. At the same time, the relocation compensation scheme of Danyang acetic anhydride continues to be promoted, which has affected the current profitability of the company.

Profit forecast and valuation

The production plant of the company runs stably in the third quarter, producing 32900 tons of ethylene glycol and 10300 tons of oxalic acid in a single quarter. The quarterly income in the third quarter was 236 million, up 60.76% from the previous quarter, while the gross profit margin rose to 22.57%. Since the company broke through the technical bottlenecks such as ultraviolet transmittance at the end of November 2012, the operation of the equipment has become the main factor affecting the production load. In the first half of the year, the company stopped production for 3 times, and the equipment was in stable operation in the third quarter. In October, it was prepared to continue production and maintenance for 10 days in winter, and now it has resumed production. At present, after constantly checking and filling leaks, the stability of the equipment is improving day by day.

Tongliao Gold Coal plans to invest 300 million yuan to expand the capacity of the existing plant and increase the ethylene glycol production capacity by about 100000 tons, which is expected to be postponed until next year. After the completion of the transformation, the current fixed cost of production will be greatly reduced and the product profitability will be improved. At present, the company is fully promoting the completion and acceptance of the first phase of the project and the relocation of the acetic anhydride plant in Danyang. With the maturity of production technology and stable equipment, the company's profits may pick up.

Risk

1, the trial run of coal-to-ethylene glycol project has encountered setbacks again; 2, the progress of Henan project is later than expected; 3, the downside risk of market valuation center.