Main points of investment
Core business sales growth, net profit growth exceeded expectations. Tiande Chemical (0609.HK) announced its mid-term operating results on August 25, with operating income of 596 million yuan, up 1.9% from the same period last year, gross profit of 204 million yuan, up 24.8% from the same period last year, and net profit of 116 million yuan, up 25.2% from 0.109 yuan in the same period last year to 0.137 yuan. Interim dividend rose to HK $0.04 from HK $0.025 in the same period last year. The increase in revenue was mainly due to a 9.4% increase in sales of cyano compounds and their downstream products, which were the core business of the company, to 559 million yuan.
The decline in the cost of raw materials led to an increase in gross profit margin and an increase in operating costs compared with the same period last year. In the first half of the year, the company's overall gross profit margin rose 6.3 percentage points to 34.3%. On the one hand, the increase in gross profit margin is due to the substantial reduction in the cost of raw materials caused by the persistent downturn in commodity prices; on the other hand, the company introduces advanced automated production technology to improve overall productivity. But at the same time, with the growth of sales and staff costs, the company's operating costs also increased. In the first half of 2016, the company's sales expenses increased by 21.1% compared with the same period last year, accounting for 3.7% of revenue, up from 3.1% in the same period last year. The proportion of administrative and operating expenses also increased to 3.7% from 3.5% in the same period last year.
Our point of view: Tiande Chemical is one of the leading enterprises of fine chemicals based on cyano compounds in the world, with a broad downstream market, with a global market share of 45% and 50% in some segments.
With its complete industrial chain, technical advantages and cost-side advantages, the company has a certain bargaining power and strong market competitiveness in this field. With the continuous improvement of environmental protection and technical requirements of the chemical industry, some small and medium-sized enterprises will gradually withdraw from the market, the industry concentration will be further increased, and the company is expected to further increase its market share. In addition, the company actively develops downstream products vertically, and plans to expand the business coverage of downstream industries through mergers and acquisitions or cooperation to build aircraft carriers in the industry. The current share price of the company is 13 times the PE of 2016, so investors are advised to follow it actively.
Risk tips: product expansion is less than expected risk; raw material prices rise sharply risk.