Key points of funding:
The company released its 2018 quarterly report forecast. The estimated net profit of the mother is 104-119 million yuan, a decrease of 30-20% over the previous year and an increase of 3-17.8% over the previous year, after deducting the transfer premium of 58 million yuan formed by the transfer of Agricultural One Network in the same period in '17, an increase of 15-32% over the previous year, which is basically in line with expectations. The main reason is that the price of original drugs increased month-on-month in the first quarter. The Huifeng Petrochemical Phase II project was put into operation, providing the company with a new increase in performance, but due to the discontinuation of production by the Lianyungang subsidiary, sales of some products fell short of expectations.
Benefiting from stricter environmental regulations and improved demand, prices of traditional main business products have risen, and performance has continued to grow steadily. The company is a leader in multiple drug segments, such as misinamide, octanoyl brombenzonitrile, fluconazole, etc. Domestic production capacity accounts for a large proportion and has a high voice. As a relatively compliant pesticide company, the company has benefited from stock replacement opportunities brought about by the withdrawal of small scattered sewage production capacity. The volume and price of all major products have risen sharply. The current market prices of imixenamine, fluconazole, and bifenthrin have increased by 57%, 31%, and 57% compared to the beginning of last year. Domestic pesticide exports as a whole have continued to grow, but production has declined due to environmental protection. It is expected that overseas multinational enterprises will continue to replenish stocks for a long time. The company's pesticide products will benefit in the medium to long term, and the traditional main business is expected to continue to grow steadily.
Ammonium phosphate will lead the company's future growth. Under the severe situation of domestic environmental inspections, orders from overseas giants are gradually being concentrated on enterprises that guarantee safe and environmentally friendly production. The company issued convertible bonds to raise 845 million yuan for technical improvement projects for ammonium phosate, antiperesters, and methoxymethoxazide. The debt-for-equity price is 7.74 yuan/share, which is significantly higher than the current stock price, which reflects management's confidence in the company's intrinsic value. Ammonium phosphate has benefited from the withdrawal of paraquat from China in the short term. Looking at the promotion of genetically modified emerging markets in the long term, it is expected to replicate the growth path of maicodactone. The commissioning of convertible bond projects dominated by ammonium phosphates will support the company's growth.
Maintain profit forecasts and maintain “buy” ratings. The revenue forecast for 2017-2019 was maintained at 12322, 16352, and 18.599 billion yuan respectively, and net profit of the mother was 429, 535, and 607 million yuan respectively. Currently, PE corresponding to the stock price is 15X/12X/11X. The recent concentrated increase in holdings by company executives shows confidence in development. Considering that the pesticide industry is expected to recover downstream, the scale of Huifeng Petrochemical's trade is flexible, and the investment of new pesticide production capacity supports growth and maintains the “buy” rating.
