Events:
On August 30, the company released a semi-annual report saying that the net profit attributed to the owner of the parent company in the first half of 2018 was 71.4585 million yuan, an increase of 99.37% over the same period last year; operating income was 1.303 billion yuan, an increase of 46.64% over the same period last year; and basic earnings per share was 0.1069 yuan, an increase of 99.44% over the same period last year.
Viewpoint:
The holding company formally set up subsidiaries sugar industry plate and mining sector, straightening out the mining sector and Guangdong Zhanhua and Yunsu mining industry, a subsidiary of Guangye Group, and the reform of state-owned enterprises accelerated significantly. After receiving the supervision letter from Guangxi Securities Regulatory Bureau at the end of July 17, the company actively rectified the problems of corporate governance by combing the business of the company's mining and sugar sub-sectors. in July this year, the company has reorganized the chairman, general manager, chief engineer and a vice president of the company. The move heralds the acceleration of Guangdong Guangye Group's integration of its listed platform companies, in order to solve the problem that Guangdong Guangye Yunpyrite Mining Co., Ltd., a wholly-owned subsidiary of Guitang Co., Ltd., which was acquired by major asset restructuring in 2015, is not completely separated from its former major shareholder and controlling shareholder Yunfu Guangye Pyrite Group Co., Ltd in terms of personnel management, production and operation and office management system. At the same time to solve the group's Guangdong Zhanhua and Yunnan sulfur mining industry competition problem. The new chairman and general manager have rich experience in mixed reform of Guangdong Hongda blasting Co., Ltd., and the new vice president has rich experience in capital operation, which is expected to inject new strength into Guangdong Gui Holdings. At the same time, Guangdong Guangye Qingyi Food Technology Co., Ltd., under Guangye, was listed in the "double hundred" action of national reform. The requirements put forward by the Guangdong SASAC to the state-owned enterprises directly under the province to "strengthen the main business, level, reduce leverage, and remove zombies" will encourage the group to improve the asset securitization rate and become bigger and stronger.
The performance of the company's sugar sector has declined, and it is expected that the sugar sector will not be able to get out of the cycle of falling sugar prices until the 20th squeeze season. The operating income of sugar production in the first half of 2018 was 662.4872 million yuan, an increase of 117.16 percent over the same period last year; the gross profit margin of home-grown sugar was 4.84 percent, down 8.76 percent from the same period last year, mainly because the price of sugar fell from 7032 yuan per ton at the beginning of the 2018 pressing season to 5905 yuan per ton in June 2018, a decline of 19.09 percent. The planting area of sugar in China is expected to be 22.76 million mu during the 2018-18 press season, expanding for the second year in a row and about 4 per cent more than the 2017-18 squeeze season. Among them, sugarcane planting area is 19.25 million mu, sugar beet planting area is 3.51 million mu. The company's gross profit margin in the sugar sector continues to decline in the second half of the year and is likely to lose money. Before the squeezing season, the Guangxi government will set the next year's guided sugarcane purchase price according to the sugar price of the non-crushing season from April to October of that year. We think that this year, with the sugarcane price continuing to decline, the sugarcane purchase price set by the government is expected to be reduced. The company's sugar production costs are expected to be significantly reduced next year.
The paper industry plate reduces fees and increases efficiency, and the withdrawal of finished paper has achieved remarkable results. The operating income of the paper industry in the first half of 2018 was 207.5868 million yuan, down 16.77 percent from the same period last year. However, the gross profit margin of the paper industry rose 11.31% compared with the same period last year, and the paper market improved significantly. The production and sales of machine-made pulp increased by 39500 tons and 19400 tons respectively in the first half of the year, an increase of 4.47% and 26.80% respectively over the same period last year. Thanks to the fact that the company began to withdraw from pure household paper in mid-17, the output and sales of household paper decreased in the first half of the year, but the gross profit margin significantly increased by 7.74% to 11.93%.
The recovery of the company's mining sector continued, and mining sales rose steadily. In the first half of the year, Yunsu Mining completed its main business income of 390.04 million yuan, an increase of 32.71% over the same period last year, and a gross profit margin of 41.46%, an increase of 1.55% over the same period last year. The company's mining sector has benefited from technological reforms and is expected to rise in volume and prices this year to support the drag on the company's performance caused by weak sugar prices. The main products of the company's mining sector are pyrite concentrate, whose sales scope is limited by transportation costs, and the pyrite concentrate products are highly dependent on the chemical industry and other downstream industries. At the present stage, the sulphuric acid production process in China is mainly sulphuric acid production from pyrite, sulfur and smelting flue gas, and sulfur and non-ferrous metal smelting flue gas can replace pyrite. As a by-product of oil refining and chemical industry, the price of sulfur is greatly affected by the international oil price. since June 2017, the international oil price began to rise, and the international crude oil price began to rise. This directly leads to the cost advantage of producing sulphuric acid from pyrite over that from sulfur, and the price of pyrite begins to rise. We expect pyrite to benefit from high oil prices.
Profit forecast and investment rating: the company's EPS from 2018 to 2020 is expected to be 0.08,0.19,0.40 yuan respectively, corresponding to PE is 63 times, 27 times and 12 times respectively. Considering the company's core listing platform integration acceleration, the company's sugar sector is expected to recover as soon as next year's crushing season, with outstanding comprehensive advantages of the enterprise. For the first time, coverage gives a "highly recommended" rating.
Risk Tip: raw material fluctuation risk National Reform is not as expected
