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The company released its 2018 semi-annual report on August 16, 2018, with operating income of 2.711 billion yuan, + 10.98% year-on-year, and net profit of 382 million yuan, + 8.86% year-on-year. Basically in line with expectations, our comments are as follows:
Comments:
The operation was sound in the first half and slightly affected by environmental protection in the second quarter. The company achieved revenue of 1.308 billion yuan in the second quarter, + 7.31% of the same period last year, and net profit of 176 million yuan,-8.89% of the same period last year. The decline in the company's net profit in the second quarter is mainly due to the stricter national environmental protection policy, the production capacity of pesticide enterprises in Jiangsu and the supply of upstream raw materials are subject to certain restrictions, the company's early HSE investment is sufficient, we believe that the impact of environmental factors will gradually weaken, the company's performance will return to a steady upward trend. Overall in the first half of the year, the company's revenue and year-on-year net profit growth mainly benefited from 1) paraquat, Diancao fast, chlorpyrifos and other major products sales and prices are relatively stable, biochemical enemy grass fast, biochemical VB3, biochemical pyridine base and other new capacity gradually released to provide a certain degree of support for the performance; 2) steady progress in the global channel layout, etc.
Production capacity continues to be released, and the leading position is deepened. In the first half of the year, the company's annual output of 10,000 tons of biochemical enemy grass fast industrial chain, annual output of 10,000 tons of biochemical VB3 industrial chain and annual output of 25000 tons of biochemical pyridine alkali industrial chain have reached production smoothly. After the release of the above production capacity, the company successfully consolidated the strategic layout of the integrated industrial chain and deepened its market share in each sub-section. We believe that with the increase of share and leading position, the company's profitability is expected to fully benefit and continue to improve in the current supply-side continuous clearing environment.
The construction of the new base is progressing steadily, and there is no lack of potential for growth in the long run. The planning and construction of Anhui Dongzhi production base, the company's sixth largest production base, was steadily advanced in the first half of 2018. At present, the base mainly plans to produce a series of products such as pyrethroids and fungicides. In the medium and long term, it will be committed to creating an industrial park integrating crop science and animal science. After the completion of the industrial park, it is expected to enrich the company's core product line and provide reserves for the long-term growth of performance.
Domestic and overseas bilateral extension development, accelerate the horizontal layout of the industry. In the first half of the year, the company completed the acquisition of 82.19% stake in Shandong Science and Technology, tamping the domestic layout. At the same time, with the acquisition of Ruralco in Argentina launched in the first half of the year, the company will make substantial progress in its globalization strategy. Through the extension growth of domestic and foreign markets, the company not only optimizes the layout of domestic and foreign production and sales channels, but also steadily promotes its integration in the industry and the continuous improvement of its market position.
Risk factors. Paraquat gum was banned; the development of new products downstream of the pyridine industry chain was blocked.
Maintain a "buy" rating. We maintain the forecast of the company's annual net profit of homing in 2018-19-20 at $1.491,470 million, corresponding to EPS of $1.72 billion, and maintain the target price of $30 and the "buy" rating according to 18 times PE in 18 years.
