Aspects that are inconsistent with the forecast
Longxing Chemical achieved revenue of 1.397 billion yuan in the first three quarters of 2012, down 10% from the same period last year; net profit belonging to listed companies was 36.02 million yuan, down 58% from the same period last year, accounting for 45.1% of our previous 2012 annual income / net profit forecast, respectively. Among them, the net profit in the third quarter was only 2.85 million yuan. Main points: (1) the company's comprehensive gross profit margin in the first three quarters was 16.4%, down 2.2 percentage points from the same period last year. Since 2012, the trend of the tire industry in the downstream market of the company has been weak, and the price of carbon black has dropped by 16% compared with the same period last year, although the market price of coal tar, the company's main raw material, is also declining (down 14% from the same period last year). However, the price drop is significantly lower than that of carbon black, resulting in a decline in the company's profitability. (2) despite the decline in revenue in the third quarter compared with the same period last year, the company's administrative expenses increased by 22.7% compared with the same period last year. Mainly due to the increase in R & D investment in this period and the increase in management costs due to the construction projects of Jiaozuo Longxing and silica. (3) We believe that due to the many coal tar deep processing enterprises around the area where the company is located, the competition for raw material resources leads to the gradual loss of the company's original raw material price advantage.
At the same time, the slowdown in the growth of the downstream automobile industry has led to a weak trend in the tire industry, and gross profit margins for the whole year are still under pressure.
In the fourth quarter, with the expiration of the US tire insurance against China, exports of the tire industry to the United States are expected to increase. In addition, Jiaozuo Longxing 70,000 tons of carbon black project put into production, carbon black sales are expected to pick up in the fourth quarter. The construction of the company's 1 × 35000 ton silica project is progressing normally, and trial production is expected to be carried out at the end of the year.
Investment impact
Taking into account the declining profitability of the company and the depressed downstream demand environment, we lowered our 2012E/13E/14E profit forecast by 46%, 30%, 25% to 0.11,0.19,0.24 respectively, and lowered the 12-month target price to 4.43 yuan (originally 4.94 yuan). Our new target price is based on 1.7 times the 2013 expected Pmax B and 7.6% of the 2013-2014 average ROE. We maintain the company's selling rating.
Main risks: new capacity is released faster than expected; coal tar prices fall faster than expected.
