The price increase of the product lags behind, the gross profit margin falls, and sales increase steadily. 2017 interim results: revenue increased by 21.3% to 607 million yuan, gross profit margin decreased by 6.1% to 25.7%, net profit decreased by 22.9% to 58 million yuan, and earnings per share were 0.06 yuan (0.07 yuan last year) without interim dividends. The decline in operating performance is mainly due to the increase in the price of raw materials, but the price increase of sales products lags behind and the gross profit margin falls sharply. The company's product sales have increased steadily, the market share has remained stable, and the performance is expected to pick up significantly in the second half of the year after the price increase.
Vertically expand the product chain structure and enhance the competitiveness of the product market. The company actively implements the strategy of vertical integration of existing products, making use of the competitive advantages of existing products, covering the upstream and downstream product chains of the fine chemical industry, opening up upstream products-nitrotoluene, ensuring strategic control of core raw materials for DSD acid, and extending DSD acid products downstream to the OBA field to enhance the market competitiveness of existing products.
Horizontal expansion-iron phosphate project, into lithium battery cathode materials. The company is actively expanding horizontally to the new energy lithium battery cathode material industry, building a new production line with an annual output of 15000 tons of iron phosphate products in Cangzhou, Hebei Province, and the pilot products have been recognized by customers. In addition, the company plans to build a production line with an annual output of 2000 tons of carbon nanotube paste, which will be used in the field of conductive additives for lithium electrode materials, which will cooperate with the development of ferric phosphate business and produce better synergy in the field of lithium electricity.
Our point of view: lottery Chemical is the world's leading manufacturer of fine chemicals such as dyes, pigments and pesticide intermediates. We believe that the sales volume of the company's main chemical products has increased steadily, and the market share continues to remain stable; the company is actively expanding vertically and horizontally, and marching into the lithium battery cathode material-iron phosphate project will become a new performance growth point. In the second half of the year, as the company adjusts the selling price of its products, the performance will pick up significantly. We initially forecast that the current stock price will be about 15-18 times the company's PE in 2017, and investors are advised to actively pay attention to the progress of the company's chemical products price increase and the commissioning of the iron phosphate project after completion.
Risk hint: the price of raw materials rises further and the price increase lags behind; the progress of the iron phosphate project is not as expected.