This report is read as follows:
Driven by the rise in the price of simple fertilizer and the upward rise in crop prices, the bottom of the compound fertilizer industry has warmed up. The company is expected to reverse through the use of cash crops.
Main points of investment:
Maintain the "overweight" rating and lower the target price by 8.8 yuan: the current price of elemental fertilizer is at the bottom, replacing part of the demand for compound fertilizer, and we expect the compound fertilizer industry as a whole to remain depressed. Therefore, we reduced the company's EPS to 0.32, 0.40, 0.46 yuan in 2017-2019 (formerly 0.52, 0.66, 0.81).
Give 2018 22 times the valuation, lower the target price to 8.8 yuan (the original target price 13.82 yuan), 30% space, maintain the "overweight" rating.
The price of simple fertilizer is on the rise, and rising costs are expected to boost profitability. After the start of the northern heating season in October 2017, there was a large area shortage of natural gas and a sharp drop in urea load. At the same time, the rising price of anthracite has pushed up the cost of urea at the head of coal. The low operating rate, the spring ploughing season and the rising cost have led to the imbalance in the supply of nitrogen fertilizer represented by urea, and the price continues to rise. Other phosphate and potash fertilizers have also been boosted by the upward and downward demeanor of nitrogen fertilizer.
The supply and demand pattern of compound fertilizer continued to be optimized. On the supply side: affected by environmental protection, policy, cost and other factors, the backward production capacity of compound fertilizer has been cleared continuously, there is no new production capacity, and the market share of leading enterprises has increased. On the demand side: the prices of agricultural products represented by corn are on the rise, the proportion of cash crops planted under the zero growth policy of chemical fertilizer is increasing, the compound rate of chemical fertilizer is expected to further increase, and the amount of compound fertilizer is expected to increase.
Cash crops are expected to grow in 2018. Previously, the company's products were mainly concentrated in field crop fertilizer, while cash crop fertilizer was relatively less. In the case of relatively weak fertilizer for field crops, the demand for fertilizer for cash crops is relatively good, and the market demand is expanding year by year. The company launched some efficient cash crop fertilizers in 2017. in the future, it is expected to speed up channel construction and enrich product structure by ploughing major cash crop provinces such as South and East China.
Risk tip: product prices decline, agricultural recovery is lower than expected.