Main points of investment
The prices of soda ash and ammonium chloride are rising in the same direction, and the company's future profits will be greatly improved in the near future. affected by the warming of soda ash and chemical fertilizer prices in the near future, the price of soda ash in the market has risen greatly, and the price of ammonium chloride has also begun to rise recently, driven by urea prices. the double income of the company's soda ash products is expected to improve significantly in the past 17 years.
Brief comment
Soda ash enters the upward period of prosperity.
Due to the loss of production capacity and the resumption of work in the downstream glass industry, the pattern of supply and demand of soda ash has been greatly improved. at present, the operating rate of the soda industry has reached about 90 per cent, with a production capacity of 30 million tons per year, with very little new production capacity in the future. the output will maintain an average annual growth rate of more than 3% on the basis of 26 million tons, and the soda ash downstream flat glass industry will be affected by the real estate recovery. Superimposed by the dual factors of continuous destocking, volume and price have risen since the beginning of this year, and the output in November this year has reached 63.47 million weight boxes, an increase of 7.1% over the same period last year. The annual output is expected to exceed 77 million weight boxes. At the same time, detergent, alumina and mine smelting downstream of soda ash have also maintained a high growth rate. In the case of joint efforts of the upstream and downstream, the soda ash industry will enter an upward period from 2017 to 2018. The company has 1.8 million tons / year of soda ash plant.
Urea recovers and the price of ammonium chloride rises
The relationship between supply and demand of urea in the chemical fertilizer industry is close to balance. In 2015, the national production capacity was 84.55 million tons, domestic demand was 57 million tons, and exports were 13.75 million tons. Under the continuous capacity elimination policy, the production capacity of short-term shutdown and maintenance in 2016 was 13.77 million tons, of which the production capacity with a clear time to resume production was only 2.12 million tons, and the problem of urea overcapacity was alleviated. In 2016, the price of raw material coal for urea production rose, the state cancelled electricity concessions, the price of natural gas for urea was in line with the market, grain prices at home and abroad hit bottom, market stocks were at a low level throughout the year, spring ploughing demand increased winter storage pressure, elimination of export tariffs and other factors led to a sharp rise in urea prices recently, and the improvement in the chemical fertilizer market also led to a recent rise in ammonium chloride prices.
Cover for the first time and give an overweight rating.
The company uses the combined alkali method to produce soda ash and ammonium chloride, with an annual production capacity of 1.8 million tons of soda ash and ammonium chloride, and is one of the largest soda ash production enterprises in China. On January 10th, soda ash is quoted at 2100 yuan / ton (including tax), ammonium chloride is quoted at 500 yuan / ton (including tax), and double-ton is quoted at 2600 yuan / ton. according to our estimation, the company's current profit of double-ton products is 430yuan / ton. We predict that the EPS of the company in 2017 and 2018 will be 0.66 and 0.72 yuan per share, respectively, and the corresponding PE will be 14.7 and 13.5 respectively. Give a rating of "overweight".
Risk hint: the improvement of soda ash market is not as expected; the price of ammonium chloride is down; the stability of the device.