Items:
The company announced on November 5, 2018 that the company had applied to the Shanghai Stock Exchange on October 31, 2018 for the revocation of the "other risk Alert" of the company's shares, which is currently reviewed by the Shanghai Stock Exchange and will come into effect on November 7, 2018. The abbreviation of the company's stock will be changed from "ST Asia" to "Asia shares". Our comments on this are as follows:
Comments:
The subsidiary company resumed production and the company's operation gradually improved. In order to cooperate with the environmental protection work of the government of Guannan County, eight subsidiaries of the company (accounting for 82.85% of the company's operating income in 2017) have completely suspended production and rectification since April 28, seriously affecting the company's production and business activities. therefore, the company applied to the Shanghai Stock Exchange on August 13 to implement "other risk warnings" on the company's stock. Affected by this, the company's performance has declined across the board, and the share price has also fallen to the lowest point since listing (7.26 yuan per share). On October 12, the subsidiaries Hua'er Chemical, Jiangsu Yabang Lianyungang Branch and Yabang acid-making enterprises received the notice of government approval to resume production. At present, the production plant has begun to resume production gradually. The operating income of the above three subsidiaries accounted for 62.97% of the company's 2017 operating income, and the total net profit accounted for 96.44% of the company's 2017 net profit. Due to the shortage of supply in the market, the price of dyes is still at a high position, and the resumption of production by subsidiaries is also expected to promote the rapid repair of the company's performance.
The advantage of integration is obvious, and the high gross margin space of anthraquinone leader is expected to be repaired. The company is the leader of anthraquinone dyes in China, with a market share of more than 35% in anthraquinone dyes, ranking first in the industry, and more than 50% in the field of anthraquinone disperse dyes. The company signed a "letter of intent" with Xuzhou Kaida Chemical on September 6 to reach a preliminary intention on the company's proposed acquisition of Keda Chemical, which may further enhance the company's market voice. At present, the company has a complete industrial chain system of raw materials, intermediates and products, and has advantages in product quality and cost control; the company develops circular economy in the park, forming diversified development of sulfuric acid business, thermoelectric projects, chlorine business, waste acid reuse and other businesses. We are optimistic that the company will take advantage of its leading position and circular economy to reshape higher profitability (the company's average gross profit margin has been as high as 50.63% in the past three years).
Acquire Yadong Chemical to promote the development of pesticide business. In February 2018, the company acquired a 70.60% stake in Jiangsu Henglong crop Protection Co., Ltd., and announced on October 13 that it planned to acquire a 100% stake in Ningxia Yadong Chemical Co., Ltd. with 132.5 million yuan. This will help to further promote the strategic layout of the company in the pesticide business sector and improve market competitiveness. Under the influence of environmental protection policy, the price of pesticide products is high. Under this background, it is expected that the pesticide sector will become a new profit growth point 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 M & An integration of pesticide sector are not as expected.
Maintain a "buy" rating. The maintenance company 2018 / 20119 / EPS forecast for 2020 is 0.97 / 1.53 / 1.63. Maintain the target price of 21 yuan (corresponding to 14 times PE in 2019) and the "buy" rating.