The 1-3Q18 results are in line with expectations Kim Jong-dae announced the 1-3Q18 results: operating income of 21.25 billion yuan, up 12.3% year on year; net profit attributable to the parent company was 954 million yuan, up 5.1% year on year, corresponding to earnings of 0.30 yuan per share, in line with expectations. 3Q18's revenue was 7.48 billion yuan, up 16.1%/8.5% month-on-month, achieving net profit of 117 million yuan, up 3.1% year on year, down 62% month on month. The sharp month-on-month decline was mainly due to high cost increases. 3Q18 management expenses (including R&D) were 423 million yuan, up 50%/160% month-on-month. The company expects net profit of 715 to 930 million yuan for the full year of 2018, an increase of 0% to 30% over the previous year. Development trend The sharp rise in the volume and price of compound fertilizer led to performance growth from 1 to 3Q18. From 1 to 3Q18, the price of single fertilizer such as urea, monoammonium phosphate, and potassium chloride rose 21%/19%/14% year on year, driving the factory price of the company's chlorine/sulfur-based compound fertilizer to increase 4.4%/15% year on year, compounding the increase in compound fertilizer sales and driving the company's performance growth. The overall gross profit margin from 1 to 3Q18 was 15.8%, up 0.4 ppt year on year. Among them, 3Q18 gross profit margin was 14%, up 1.7 ppt year on year, and down 1.8 ppt month over month. The month-on-month decline was mainly due to the month-on-month decline in the price of sulfur-based compound fertilizer, while the price of monoammonium phosphate and the like continued to rise. The steady progress of Jinfeng Commune is expected to drive the increase in compound fertilizer sales. Jinfeng Commune provides a full range of agricultural services by gathering resources from the planting industry chain. Currently, Jinfeng Commune is still in the early stages of laying out outlets and absorbing land. In the future, as Jinfeng Commune develops more, the driving effect on the company's compound fertilizer sales will gradually become apparent. Optimistic about the company's soil-friendly fertilizer development. The company is striving to promote the concept of soil-friendly planting to the world and raise the popularity of soil-friendly fertilizers through demonstration promotion. Currently, pro-soil fertilizer is mainly used in the field of cash crops. Sales are growing rapidly and product gross margin is high. At the same time, the company and Fulang set up a joint venture to work together on soil protection, restoration and improvement projects, which is conducive to speeding up the company's layout in the field of soil protection and restoration. Profit forecast Since COMPO is in a low sales season in the second half of the year, the increase in the company's shareholding ratio in Ningbo Jinzhengda will affect 4Q performance. Combined with the increase in the price of monomer fertilizer, compound fertilizer profits are under pressure. We lowered our 2018/19 profit forecast by 20%/8% to 0.26/0.40 yuan/share. Valuation and recommendations The current stock price of the company corresponds to the 2018/19 price-earnings ratio of 21.6/14.0x. Due to the reduction in profit forecasts, we lowered our target price by 20% to 7.2 yuan. Compared with the current stock price, there is room for 28% increase. The target price corresponds to 2018/19 28/18x PE, maintaining the recommendation. The price of risk-based fertilizer rose sharply, and sales of compound fertilizer fell short of expectations.