Key points of investment
The fertilizer market picked up, and net profit turned a loss into a profit. Sinochem Fertilizer's results for the first half of 2017: revenue increased 17.52% year on year to 10.469 billion yuan; gross profit surged 154.87% year on year to 905 million yuan; gross margin increased 7 percentage points to 8.6% year on year; net profit reversed to 13 million yuan; the company's earnings per share were 0.0018 yuan (loss of 0.0615 yuan in the same period last year), with no interim dividends paid. The reversal of operating performance in the current period was mainly due to the recovery in the fertilizer market and the recovery in product sales and product prices.
Product sales have increased, and profitability has increased significantly. In the first half of 2017, the company's product sales increased 16.89% over last year to 6.09 million tons. Through the efficient allocation of resources, the reform of the remuneration system, and the establishment of strategic partnerships, the company has further enhanced the company's market competitiveness. The company's sales of all major fertilisers have risen to varying degrees.
Actively implement strategic transformation and upgrading, and transform from fertilizer supplier to agrochemical service provider. The company seizes the period of land transformation to provide historical development opportunities and actively implements strategic transformation: 1. The company takes the initiative to strengthen strategic procurement, increases the concentration of fertilizer suppliers, and enhances product bargaining power. 2. Sales terminal reform is vigorous to improve efficiency. These include a sharp increase in incentives and strength for frontline business personnel; an increase in the proportion of industrial customer sales; and an increase in the number of terminal personnel and stores.
Our view: Sinochem Fertilizer is actively implementing a strategic transformation from a fertilizer supplier to an agricultural fertilizer service provider. We believe: 1. Sales terminal reform has been strengthened to secure the company's leading position as a fertilizer distributor. 2. Supply-side reforms in the fertilizer industry continue, and the profitability of the industry has improved. 3. The company is actively transforming into an agrochemical service provider and adapting to the historical opportunities of domestic agricultural reform. In the first half of this year, the company turned a loss into a profit. Currently, the company's stock price corresponds to about 0.8 times PB. Investors are advised to pay attention to the progress of the company's strategic transformation and changes in fertilizer product prices.
Risk warning: prices of agricultural products are falling; prices of chemical fertilizer products are falling.