Event

The company released its annual report in 2016, with an operating income of 662 million yuan, an increase of 5.49% over the same period last year, and a net profit of 16 million yuan, a decrease of 73.53% over the same period last year, and basic earnings per share was 0.30 yuan. Among them, the company achieved operating income of 187 million yuan in the fourth quarter, an increase of 10.7% over the same period last year. Bing Q4 realized a net profit of-6 million yuan, a decrease of 146.15% over the same period last year. In the first quarter of 2017, the company achieved an operating income of 244 million yuan, an increase of 103.85% over the same period last year, an operating profit of 21 million yuan, an increase of 72.38% over the same period last year, and a total profit of 22 million yuan, an increase of 74.31% over the same period last year. The net profit attributed to the parent company was 17.291 million yuan, an increase of 67.47% over the same period last year.

In the first quarter of 2017, the operating income was 1.354 billion yuan, down 4.04 percent from the same period last year, and the net profit returned to the mother was 79.6 million yuan, down 47.42 percent from the same period last year, with basic earnings per share of 0.07 yuan.

It is estimated that the net profit of returning home in the first half of 2017 is 2.64-378 million yuan, down 30% from the same period last year.

Brief comment

The industry as a whole is in the doldrums, and the increase and price of compound fertilizer leads to a decline in performance.

In 2016, the compound fertilizer industry remained in the doldrums due to multiple negative conditions such as overcapacity, low industry concentration, vicious competition and the cancellation of many preferential policies. the prosperity of the chemical fertilizer industry continues to decline and the market competition intensifies, resulting in a decline in the company's overall performance: on the one hand, the company's sales growth slowed down, with chemical fertilizer sales of 2.56 million tons in 2016, an increase of only 5.31 percent over the same period last year. On the other hand, the gross profit margins of the company's main products, such as chlorine-based compound fertilizer, sulfur-based compound fertilizer and BB fertilizer, were 26%, 24.37% and 30.10% respectively, an increase of 3.20,3.43,1.14 percentage points respectively over the same period last year, but the decline in gross profit margin could not make up for the decline in the overall price of compound fertilizer. Among them, the average price of sulfur-based compound fertilizer was 2200 yuan per ton in 2016. 200 yuan / ton lower than the average price for 2015 The average annual price of chlorine-based compound fertilizer was 2295 yuan / ton in 2016, down 220 yuan / ton from the average price in 2015.

Although the price of compound fertilizer increased somewhat in 2017, the average price of chlorine-based compound fertilizer and sulfur-based compound fertilizer Q1 was 2072 yuan / ton and 2165 yuan / ton respectively, down 5.1% and 5.8% respectively from the same period last year. As a result, the net profit of 2017 Q1 still fell 47% to 79.6 million yuan compared with the same period last year.

The prospect of compound fertilizer is still bright, and the price of elemental fertilizer rebounded to promote the preliminary improvement of the industry. Although the compound fertilizer industry experienced a continuous downturn in 2016, its overall future is still bright: 1) there is a huge room for improvement in the compound rate. Compared with elemental fertilizer, compound fertilizer can improve fertilizer use efficiency and reduce the adverse effects of soil consolidation, fertility decline and water pollution caused by long-term use of single fertilizer. Compared with the current situation of 80% in developed countries, the gap in China is still large, and there is a lot of room for improvement in the compound rate. 2) with the expansion of the planting area of cash crops and the increase in the amount of compound fertilizer, especially new high-efficiency compound fertilizers such as slow and controlled release fertilizer, nitro fertilizer, water-soluble fertilizer and bio-organic fertilizer, the market space is larger; 3) with the increase of labor cost, intelligent fertilizer has a wide space. In the fourth quarter of 2016, the price of raw material fertilizer bottomed out and rebounded, of which the average price of urea reached 1400 yuan / ton in the fourth quarter, an increase of 18% over the previous quarter. With the rise in urea prices and expectations of the spring market, compound fertilizer prices began to stabilize and pick up. In 2017, the company raised the prices of chlorine-based and sulfur-based compound fertilizers by 160yuan / ton and 200yuan / ton respectively, and the industry initially showed improvement.

Obvious advantages in brand and channel, huge market share development space, the company currently has a nominal production capacity of about 6 million tons, the main products are sulfur-based compound fertilizer and chlorine-based compound fertilizer, new fertilizer "fourth element", water-soluble fertilizer and slow and controlled release fertilizer are also developing. At present, the company has built 10 production bases in Linshu County, Shandong Province, Pingyuan County, Shandong Province, Dezhou City, Jilin Province, Guigang City, Guangxi Autonomous region, Dangyang City, Hubei Province, Suiping County, Henan Province, Ningling County, Henan Province, Fengcheng City, Jiangxi Province and Dingxi City, Gansu Province, covering most of the planting areas of the country. The company's brand awareness is at the leading level in the industry, and the advantages of channel structure and deep network are obvious. more than 3000 sales and service outlets at the county level have been established in 31 provinces, municipalities and autonomous regions, including more than 2300 first-level businessmen, of which 40% are franchised. the compound fertilizer business only covers the company's products, and the overall cooperation is relatively stable. The company leads the sales of middle and high-end products such as "Stanley", "fourth element" and "Jinsu". At present, the company's overall market share of compound fertilizer is 5%, of which the market share of field crop fertilizer is about 9% and that of cash crop fertilizer is 1.2%. The follow-up company will focus on R & D and promotion of cash crop fertilizer, strengthen market development in areas where cash crop fertilizer is used, and increase "San'an" and "fourth element".

With the market promotion of new high efficiency fertilizers, the market development prospect is good, and the market share is expected to be further increased.

Participate in Henderson seed industry, transform agricultural integrated service provider

In 2015, the company formulated the development strategy of transforming into an agricultural service provider, adopted the agricultural service development model of "self-management + platform", and planned to change the role from a single agricultural material supplier to a comprehensive agricultural service provider. In the same year, the company established a wholly-owned subsidiary Stanley Agricultural Service Co., Ltd. Provide integrated services including seeds, fertilizers, pesticides, agricultural machinery, agricultural technology, food trade, finance and information for large growers, family farms and agricultural cooperatives. In 2016, the company's agricultural information service platform Stanley Agricultural Service platform was officially launched, based on agricultural informatization, building agricultural material supply system, member management system, financial payment system and agricultural service system.

In September 2016, the company acquired a 35% stake in Anhui Henderson seed Company with its own capital of 150 million yuan, and the target company held a 55% stake in Henderson Magland seed Company, further strengthening the company's core advantage in the field of agricultural services. Anhui Hengji seed Industry Co., Ltd. is a modern Chinese-funded enterprise, mainly engaged in seed cultivation and business, while Limagland Group is the largest seed company in Europe. Daejeon seed ranks fourth in the global seed industry, and vegetable seed ranks second in the world. Henderson Maglan, as the only platform for Limagram Group to enter the Chinese market, can help the company integrate the resources of the planting industry chain from seed, fertilizer to grain acquisition, further implement the company's strategic planning, and improve the agricultural material integration service platform. in business, the company will carry out brand publicity and channel sharing with Henderson seed industry, and carry out research, development, demonstration and promotion of the scheme of "fertilizer integration". Realize the application of the matching technology of "improved seed, good fertilizer and good law", achieve complementary advantages, improve the overall competitiveness of the company, and gradually enter a new stage of development.

It is estimated that the EPS from 2017 to 2018 will be 0.52,0.65 yuan respectively, corresponding to PE17X and 14X, maintaining the overweight rating.