Events: Chengzhi shares disclosed its annual report on March 14 that the company achieved revenue of 5.868 billion yuan in 2018, an increase of 3.05% over the same period last year, net profit of 849 million yuan, an increase of 5.05% over the same period last year, and earnings per share of 0.68 yuan.
Asset impairment affects the company's profits: in 2018, the provision for asset impairment is 197 million yuan, and the write-off assets is 1.0327 million yuan. The above-mentioned items reduce the net profit attributed to the parent company by 165 million yuan in 2018, and the impact is attributed to the owner's equity of the parent company of 165 million yuan.
Based on the operation mode of the industrial park, Nanjing Chengzhi is the forerunner of domestic MTO process. With the commissioning of 600000 tons of production capacity in 2019, the profitability will be further enhanced: subsidiary Nanjing Chengzhi (Nanjing Wisheng) is the domestic MTO process pioneer. At present, the company has 300000 tons of MTO plant capacity, and 600000 tons of capacity under construction is expected to be put into production in 2019. The impact of the superimposed plastic ban on polypropylene prices has further enhanced profitability as polypropylene prices remain high.
The company is the target of the rise in crude oil and natural gas: the price of crude oil determines the price center of propylene, while the prices of natural gas and syngas change in the same direction, and the company mainly buys raw materials for coal and methanol. In the case of fluctuations in the coal price range, the rise in crude oil and natural gas prices will lead to higher product prices and thus thicken the company's performance.
Liquid crystal display material project conversion, will benefit from the increase in flexible OLED screen share: Chengzhi Yonghua invested in the construction of TFT-LCD high-generation line liquid crystal material project all solid, subsidiary OLED materials can be used in flexible OLED production line, will benefit from the increase in flexible OLED screen share.
The company intends to transfer 37.14% of the shares held by Yunnan Hansu. The company signed a framework agreement on equity transfer and capital increase with Yunnan Hansu, Yunnan Han League and other parties. The company or its subordinate companies plan to transfer 37.14% of the shares held by Yunnan Hansu to Yunnan Hanmeng, and at the same time increase the capital of Yunnan Hanmeng by no more than 100 million yuan. After the completion of the capital increase, the company or subordinate companies become the controlling shareholders of Yunnan Hanmai. Yunnan Hanmeng, which is mainly engaged in the processing and extraction of industrial marijuana, received a "reply on the application of Yunnan Hanmeng Pharmaceutical Co., Ltd. to carry out the project of industrial hemp mosaic processing" issued by the public security department in September 2018. Through this acquisition, it will help the company to further expand the business scope of the life technology and medical and health sectors, and the company will actively explore and promote synergy to help the application of industrial marijuana in the medical and health field.
Investment suggestion: the company is a pioneer in the MTO field with rich operational experience. With the conversion of the liquid crystal material project and the commissioning of 600000 tons of MTO devices, the company's profitability will be significantly enhanced. We forecast that the annual EPS in 19-20-21 will be 0.84,1.09 and 1.20 yuan respectively, maintaining the "recommended" rating.
Risk hint: the MTO plant was put into operation less than expected risk, methanol plant was put into operation less than expected risk, arbitration compensation risk, goodwill impairment risk, industrial marijuana project was not as expected.
