Red Sun announced that it intends to acquire Chongqing Zhongbang to strengthen the coordination of the industrial chain and promote performance growth. The target company is mainly engaged in the intermediate of three drugs, 2pyrrine, 3-dichloropyridine, we are optimistic that the industry will rise under the tight supply and demand pattern, and Chongqing Zhongbang is expected to increase its market share under the leading production restrictions. Regardless of the increased performance brought about by this acquisition, we maintain the company's target price of 30 yuan and maintain the "buy" rating.
Strengthen the coordination of the industrial chain to stimulate performance growth. The company announced on December 11, 2018 that it intends to acquire 100% equity in Chongqing Zhongbang of Sun Company of Southeast Yinong Group, which is the company's controlling stock, with a transaction price of 1.186 billion yuan. The core products of Chongqing Zhongbang are 2pyrine 3-dichloropyridine and ZPT, which are mainly used in the field of three-drug intermediates and daily chemical care. The target company's industrial chain and the company's dominant industrial chain have obvious synergistic benefits, which is an important supplement to the company's existing product range. Red Sun Pharmaceutical Group has promised that the net profit of Chongqing Zhongbang from 2018 to 2020 is not less than 6449 yuan, 8477 yuan and 112.14 million yuan respectively, and the statement is expected to boost the company's performance growth.
2pyrrine 3-dichloropyridine: the supply and demand pattern is tight, which drives the scene up. At present, the annual demand for 2jue 3-dichloropyridine is about 2200 tons, which is mainly used for raw material demand of DuPont's own chlorobenzamide, domestic imitation Kangkuan and dihalogenation production enterprises. Benefiting from the continuous promotion of chlorobenzamide in the field of medicine and fertilizer, and the expected blowout growth in demand brought about by the expiration of chlorobenzamide patents in 2021, we expect the average annual growth rate of 2-dichloropyridine to exceed 30% in the next 3-5 years. Recently, under the pressure of environmental protection, the supply of 2pyrine 3-dichloropyridine, the main domestic production enterprises, Hebei Yanuo and Shandong Tianxin, has shrunk. Chongqing Zhongbang is expected to take advantage of product quality to increase market share during the gap period of leading supply.
ZPT: the industry is highly concentrated and the demand is growing steadily. ZPT market capacity reaches ten thousand tons, the United States Oqi occupies a leading position, the industry concentration is high. ZPT is the main raw material in shampoo manufacturing, washing powder and soap manufacturing, paint manufacturing and other industries. Benefiting from the consumption nature of downstream products, ZPT demand is expected to achieve long-term and stable growth. In the field of laundry detergent and soap manufacturing, ZPT, as an antimicrobial agent, is gradually replacing triclosan and trichlorocarban, providing large-scale potential demand increments for ZPT.
Risk factors: declining global demand for pesticides; increased competition in the industry; and lower-than-expected progress of acquisitions.
Investment advice: as this transaction has not yet been completed, we do not consider the increased performance brought about by the acquisition of Chongqing Zhongbang.
Maintain the forecast of the company's annual homing net profit in 2018-19-20 at RMB 1.491,356 million, corresponding to EPS 1.72max 1.98pm 2.33, and maintain the target price of $30 and the "buy" rating according to 18 times PE in 18 years.
