Event: the company released its three-quarter report in 2015, with operating income of 3.119 billion yuan in the first three quarters, a decrease of 13.0% over the same period last year, and a net profit of 54.762 million yuan in return to its mother, with an EPS of 0.09 yuan in the first three quarters. At the same time, the company announced that Meifeng Technology, a wholly-owned subsidiary, intends to acquire the 11.2km natural gas pipeline and supporting facilities owned by Sichuan Miancheng Petrochemical Company for no more than 26.848 million yuan.
Gross profit margin has increased significantly and profits have improved significantly. The main reason for the significant improvement in the company's profit in the first three quarters was a sharp increase in gross profit margin, which rose 8.8 percentage points year-on-year to 12% in the first three quarters. The main reasons for the sharp increase in the company's gross profit margin are as follows: (1) the sales of the main business have improved significantly, including a substantial increase in compound fertilizer revenue, a year-on-year increase in gross profit margin, a rise in urea product prices and a year-on-year increase in gross profit margin. (2) the operating income of the company's own products has increased, and the proportion of trade revenue has decreased, which has also driven the company's comprehensive gross profit margin. (3) Mianyang Industrial Park has been officially put into production, the new production capacity began to increase the performance of the company, melamine and other products extend the urea industry chain and improve the added value of the products.
Natural gas price adjustment will significantly reduce the company's urea cost and greatly increase its performance. China's natural gas price reform is expected to accelerate, and the detailed rules may be launched in November. Natural gas price adjustment will significantly reduce the company's urea cost and greatly increase the company's performance. The company has about 500 million cubic meters of natural gas for urea production, and the natural gas price reduction in 2016 will directly benefit the company's urea revenue, calculated according to the expected price reduction of 30 cents for the company's chemical fertilizer plan gas and incremental gas, assuming that the urea market next year is the same as this year. The company will increase its performance by 150 million yuan in 2016 due to the decline in urea costs. With the natural gas prices gradually in line with the market, we expect that there is still room for natural gas prices to decline in 2017, and the company's performance is obviously flexible.
Actively promote LNG business, Qianzhong project is expected to contribute profits next year. At present, the Yazhong project is progressing smoothly and is expected to contribute profits from 2016. The company has China Petroleum & Chemical Corp major shareholder background, determined to enter the energy industry, the layout of clean energy strategic thinking is clear. With the gradual promotion of China Petroleum & Chemical Corp's mixed ownership, it is more likely that its assets will be spun off into the platform of listed companies.
This asset acquisition will help the company to reduce costs and fees and cultivate new profit growth points. According to the natural gas consumption calculation of Meifeng Technology, Meifeng Technology has to pay the natural gas pipeline transportation fee of Miancheng Petrochemical Company up to 6.877 million yuan every year, and the pipeline transportation fee is relatively large, and there is still the possibility of price increase in the future, which is not conducive to the company's control of production costs. Through this acquisition, the large annual management and transportation expenses in the future will be avoided, and the investment cost is expected to be fully recovered within 4 years. And it will help to improve the company's control over the natural gas transportation of Meifeng Technology Co., Ltd., and help Sichuan Meifeng Natural Gas Investment Co., Ltd., a subsidiary of the company, to use the pipeline for end-user expansion and cultivate new profit growth points.
Performance forecast and valuation: we predict that the EPS of the company in 2015, 2016 and 2017 will be 0.11,0.47 and 0.67 yuan respectively, and the dynamic PE will be 87 times, 20 times and 14 times respectively. We are optimistic about the long-term outlook of the company's LNG business, natural gas price adjustment will significantly thicken the performance and maintain the "buy" rating.
Risk hint: the risk of raw material price fluctuation, the risk that the production schedule of LNG project is lower than expected, and the risk that the market demand of automotive urea is lower than expected.
