Event description

Jianfeng Chemical released its 2013 annual report: in 2013, the company achieved operating income of 3.437 billion yuan, an increase of 3.45% over the same period last year, and the net profit belonging to shareholders of listed companies was 7.2778 million yuan, down 94% from the same period last year. Realize the deduction of non-net profit belonging to shareholders of listed companies-68.45 million yuan; corresponding to earnings per share of 0.01 yuan.

In addition, the company forecasts that from January to March 2014, the company's net profit due to equipment overhaul is expected to be-70 million yuan.

Event comment

The recession in the urea industry and the shortage of natural gas brought poor management in 2013: the urea industry encountered a cold winter rarely seen in recent years in 2013, and prices continued to fall due to the influence of supply and demand. According to our tracking, nearly 4 million tons of urea capacity was put into operation in 2013, which has a significant impact on the original market, and the deterioration of the export situation also has an impact on the domestic urea industry. For gas urea, it is even worse. The price of natural gas was raised in mid-2013, which directly led to an increase in the cost of gas urea enterprises; coupled with the shortage of gas supply, three factors affected the company's profitability.

Ensure production stability of the shale gas development company: the first marine shale gas coke shale gas 1HF well was drilled in China Petroleum & Chemical Corp Fuling Jiaoshiba shale gas block at the end of 2012, 9 shale gas wells were drilled in 2012 and 24 wells were drilled in 2013, which are still in the stage of continuous development. According to China Petroleum & Chemical Corp's plan, China Petroleum & Chemical Corp plans to invest 2.5 billion yuan to build 40-50 shale gas horizontal wells in the block in 2014, with an production target of more than 1 billion square meters in 2014 and a target of 4 billion square meters in 2015, including 3 billion square meters of commodities. And plans to build 5 billion square meters of production capacity by the end of 2015. We believe that the mass production of shale gas will help to ensure the company's gas use. in addition, according to the framework agreement reached between the Chongqing Municipal Government and China Petroleum & Chemical Corp: the gas supply price is on the basis of implementing the national price policy, fully consider Fuling's support and contribution to shale gas exploration and development, and give maximum concessions. We believe that if the gas price is lower than that of outsourced natural gas, the company's profits will be further improved.

Profit forecast and valuation: the company incurred a lot of expenses due to plant maintenance in the first quarter, and we believe that with the positive improvement in the urea industry, the worst period for the company is basically over, and the use of shale gas will improve the company's profitability. The company is expected to earn 0.30,0.50 yuan per share in 2014-2015, with a "recommended" rating.

Risk factors: uncertain shale gas pricing and lower-than-expected urea prices.