Items:
Red Sun (000525) released its three-quarter report of 2018 on October 27, 2018. In the first three quarters, the company achieved operating income of 4.119 billion yuan, + 12.47% year-on-year; net profit attributed to shareholders of listed companies was 541 million yuan, + 3.80% year-on-year.
Comments:
Revenue is growing steadily, and environmental factors are a drag on earnings. 18Q3 achieved operating income of 1.408 billion yuan in a single quarter, + 15.46% year-on-year; net profit belonging to shareholders of listed companies was 159 million yuan,-6.61% year-on-year. Under the influence of 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, resulting in the company's single-quarter gross profit margin of 28.62% in the third quarter, down 3.82pct from the same period last year, and 3.41pct from the previous year; further led to a year-on-year drop in the company's net profit margin of 2.76pct to 11.28%. Due to the sufficient HSE investment in the early stage of the company, we believe that the impact of environmental factors on the company will gradually weaken, and the company's performance will return to a steady upward trend.
Production capacity continues to be released and its leading position is consolidated. In the first half of 2018, the company successfully put into production 10, 000 tons of biochemical enemy grass fast industrial chain, 10, 000 tons of biochemical VB3 industrial chain and 25000 tons of biochemical pyridine base industrial chain. We believe that after the release of the above production capacity, the integrated layout of the company's industrial chain will be further improved. Under the current environment of continuous clearance of the supply side, the company is expected to further increase its market share by virtue of its leading position and cost advantage. profitability can continue to improve.
Steady progress has been made in the construction of the new base to reserve the momentum of long-term growth. The planning and construction of Anhui Dongzhi production base, the sixth largest production base of the company, made steady progress in the first half of 2018. In the near future, the base mainly plans to produce a series of products such as pyrethroids and fungicides, and will devote itself to building an industrial park integrating crop science and animal science in the medium and long term. 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. The company completed the acquisition of 82.2% stake in Shandong Science and Technology, tamping the domestic layout; at the same time, with the acquisition of Argentina's Ruralco company launched in the first half of the year, the company is expected to make substantial progress in the globalization strategy. Through the epitaxial growth in the domestic and overseas markets, the company will further enhance its market position in the industry integration while optimizing the layout of production and sales channels.
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 company's annual homing net profit forecast of $998 million for 2018-19-20, corresponding to $1.72 billion for EPS, and maintain the target price of $30 and a "buy" rating based on 18 times PE for 18 years.