Items:
ST Yabang (603188) issued an announcement on October 14, 2018, the company received the relevant government departments "county government on the organization of Hual Chemical and other enterprises to resume production notice", confirming that Jiangsu Hual Chemical Co., Ltd., Jiangsu Yabang Dye Co., Ltd. Lianyungang Branch, Lianyungang Acid Co., Ltd. 3 enterprises have the conditions for re-production, agreed to resume production, and require enterprises to do a good job in safety, environmental protection, fire preparations before production. At present, the company is actively preparing for the resumption of production related work, but also promoting the rectification and reform of other stop-production subsidiaries, and strive to achieve resumption of production as soon as possible. In this regard, our comments are as follows:
Comments:
With the resumption of production soon, the company is expected to fully resume benign operation. In the process of stopping production for more than five months, the company actively implemented the rectification requirements of relevant departments and actively implemented the rectification and reform work. Through this comprehensive rectification, the company's three subsidiaries are about to resume production, and the performance is expected to be significantly repaired (the above three companies' combined operating income accounted for 62.97% of the company's audited operating income in 2017, and the combined net profit accounted for 96.44% of the company's audited net profit in 2017). We judge that the company already has successful rectification and reform experience in environmental protection, the resumption of production of the other five subsidiaries will be greatly accelerated, and the company is expected to resume healthy operation in many areas and full-business layout.
Accelerate horizontal mergers and acquisitions, anthraquinone dye industry status is expected to continue to improve. The company issued an announcement on September 6, 2018, signing a "letter of intent" with Kaida Chemical to reach a preliminary intention on the company's proposed acquisition of Kaida Chemical. As the leader of anthraquinone dye industry, the company currently has a market share of more than 35%, and is currently the largest enterprise in the market share of anthraquinone dyes. If the acquisition is successfully completed, the company's market share in the field of anthraquinone dyes (Kaida Chemical has a production capacity of 10,000 tons / year of anthraquinone vat dyes) will be further enhanced, and the price discourse power will be further deepened. With the help of this acquisition, the company is expected to deepen its leadership in both depth and breadth in the anthraquinone dye industry.
The layout of the pesticide plate continues to deepen. The company announced on October 13, 2018 that Jiangsu Henglong crop Protection Co., Ltd., a holding subsidiary, intends to acquire 100% of the shares held by natural persons GE Jianzhong, Zhu Juping, Jiang Shangquan and du Wenping in Ningxia Yadong Chemical Co., Ltd. for 132.5 million yuan. This is an important strategy to further expand the fine chemical industry after the company transferred a 70.60% stake in Jiangsu Henglong crop Protection Co., Ltd. in February 2018, which is expected to provide the company with a greater increase in profits. At the same time, making full use of the company's experience in the production process accumulation and emission standardization in the field of fine chemicals, the pesticide plate is also expected to create greater synergy for the company.
Risk factors: 1) the resumption of production of the other five subsidiaries is not as expected; 2) the price of anthraquinone dyes and intermediates has dropped significantly; 3) the promotion of new projects and the integration of pesticide sectors are not as expected.
Maintain a "buy" rating. Prior to this, due to the impact of environmental protection rectification, the company's eight sub-companies stopped production and rectified, the company's performance fell sharply, and the company's share price also fell rapidly. This time, the government of Guannan County has approved the resumption of production of three major subsidiary (branch) companies of the company. We judge that the resumption of production of these three companies will promote the company to return to the track of healthy development, and the adverse effects of subsequent shutdowns will be ruled out. We are optimistic about the coordinated development of many businesses of the company for a long time. Therefore, the maintenance company 2018 / 20119 EPS for 2020 is estimated to be 0.97 / 1.53 / $1.63. Maintain the target price of 21 yuan and the "buy" rating.