Operation in 2011:

Jianfeng Chemical announced its 2011 results, with operating income of 2.589 billion yuan, an increase of 24.6% over the same period last year. Net profit belonging to shareholders of listed companies was 90.89 million yuan, down 31% from the same period last year, or 0.15 yuan per share, which was lower than we expected. In 2011, the company will not allocate or increase. The company's 11-year gross profit margin remained basically stable, and its gross profit increased by 31% over last year.

However, the second chemical plant under construction continued to stop and wait for gas for 11 years, during which the maintenance fee was included in the management cost, and the loan interest was used, resulting in a sharp increase in the company's three expense rates compared with last year, eroding profitability.

Front:

In the second half of the year, the tight situation of the company's natural gas supply has eased and its profitability has recovered. In the second half of the year, the production and sales of the company's main products were booming, and the unit fixed cost decreased significantly. The gross profit margin of 2H sales reached 24.9%, an increase of 16.5% over the first half of the year.

With the warming of the temperature and the arrival of the spring ploughing season, the price of urea has risen recently.

The second chemical plant of the company carried out trial production in January and is scheduled to be successfully put into production in the second half of this year, which will more than double the urea production capacity of the company.

The 46000-ton THF project is scheduled to be put into production in March next year, which will bring new profit growth points to the company.

Negative:

The insufficient supply of natural gas in southwest China will affect the production capacity of the first chemical plant in the future, and there is also a great uncertainty whether the second chemical plant can be put into production as scheduled.

Natural gas prices are on an upward trend in the long run, and even if the gas supply is adequate, the company's profitability may decline.

Valuation and recommendations:

We expect the company's EPS forecast for 2012-2013 to be 0.20 yuan and 0.25 yuan respectively, and the current share price is 27x and 22x for 2012-2013 PE, respectively, maintaining a "prudent recommendation" rating.

Risk:

1. The demand for urea decreases due to the weather.

2. insufficient supply of natural gas and the risk of price increase.

3. The downside risk of market valuation center.