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The company released its third-quarter 2017 report on October 22. During the reporting period, the company realized operating income of 8.938 billion yuan, an increase of 162.39% over the same period last year; and realized net profit of 328 million yuan, compared with + 134.08% of the same period last year. Q3 single-quarter operating income of + 134.08% was 2.889 billion, an increase of 96.49% over the same period last year, and its net profit was 94.39 million, up 163.10% over the same period last year. The performance is in line with the expectations of the China report. At the same time, the company issued a full-year performance forecast, which is expected to achieve a net profit of 418.5602 million yuan to 505.7603 million yuan, an increase of 140% to 190%. Our comments are as follows:
Comments:
Pesticide and petrochemical double-line increase performance, the annual performance is sustainable. During the reporting period, with the recovery of the industry, the company's pesticide business grew steadily, and the volume and prices of major products rose. At the same time, with the continuous development of the company's petrochemical warehousing project, the business of regional subsidiaries has been further standardized and adjusted, which has played an important role in revenue growth this quarter. Q3 net return to home in a single quarter is + 163%, compared with the increase of 124% in semi-annual report, it is expected to make a stable contribution to the full-year profit. The company expects to achieve a year-on-year increase of more than 140% in 2017.
Pesticide industry warming up, environmental protection pressure to promote standardized governance, the main stable forward. After the trough of 2015 and 16, the demand in the lower reaches of the pesticide industry increased steadily, and strict environmental supervision continued to put pressure on pesticide enterprises during the year, tightening the supply of raw materials and middlemen on the one hand, and accelerating the clearing of the supply side of the industry on the other. It is good for the industry leaders to further integrate production capacity and improve performance. We believe that the company, as the top five industry leader in market sales, has a number of core products at the industry leading level, including glyphosate, prochloraz, octanoylbromobenzonitrile, and so on, and has established stable customer relationships with a number of multinational agrochemical companies. it is expected to share dividends and continue to benefit and make huge profits from this round of rising cycle of the industry and high pressure on environmental protection.
The glyphosate industry is booming, the patent is over-guaranteed, and the future performance growth is expected. Paraquat has been completely banned in China for conversion to domestic demand of 12,000 to 16,000 tons, bringing about a rapid release of demand; to a certain extent, several rounds of environmental supervision have limited the possibility of production expansion of this complex product for a long time in the future, maintaining a high capacity concentration in the industry. As one of the few leading enterprises in the industry, the company has been actively expanding the production capacity of glyphosate, and the annual production of 5000 tons of glyphosate project is expected to be put into production market in the near future, which will become another performance growth point of the company in the future. In addition, the company's long-term order relationship with agrochemical giants BASF and Bayer is expected to promote the company to take the lead in obtaining patent transfer during the patent overinsurance peak, thus taking the lead in laying out the new product market.
Huifeng Petrochemical, a subsidiary, continues to develop, and the second phase of the project will continue to increase profits. The company's petrochemical warehousing project was put into construction in 2012, and the first phase of the 148,000 square warehousing project was officially put into operation in 2016 and the subsidiary turned around its losses, increasing profits by 15.21 million yuan compared with the same period last year; the organizational construction of the second phase of the project was carried out in an orderly manner, and the progress reached 92% in June. The income of the subsidiary's dangerous chemicals warehousing and trading business is growing rapidly, which has become an important reason for the company's revenue growth in the first three quarters. In the future, it is expected to expand its business scope and open up the market by building bonded warehouses and pledge warehouses on the basis of existing warehouses. Steady progress to "become an e-commerce trading platform for petrochemicals in East China", bringing a sustained and strong driving force to the company's performance.
Risk factors: product market competition aggravates the risk; raw material fluctuation risk of main products; petrochemical project construction is less than expected risk.
Maintain a "buy" rating. We are optimistic about the long-term development of future results, maintaining the company's 2017-18-19 EPS forecast of 0.31, 0.40 and 0.47 yuan respectively, maintaining the target price of 7.22 yuan, and maintaining the "buy" rating.
