In the first quarter of 2019, the prices of some of the company's main products fell, dragging down the company's revenue and net profit compared with the same period last year.
However, we are optimistic that the supply and demand of the long-term pesticide industry is good, and the company can improve the industrial chain through the layout of new production capacity, and the long-term performance growth is expected. It is predicted that the EPS of the company in 2019-21 will be 1.2111.51Compact 1.86 yuan, maintaining the target price of 24.2 yuan and the "buy" rating.
Falling product prices are a drag on performance and are optimistic about the improvement of supply and demand in the long-term industry. In the first quarter of 2019, the company realized operating income of 1.233 billion yuan,-12.74% compared with the same period last year, and net profit of 120 million yuan,-40.77% compared with the same period last year. Due to the decline in the prices of some of the main products (paraquat price is about-25% year-on-year, fast grass price is about-10% year-on-year), the company's operating income and gross profit margin have declined, dragging down the company's net profit. We believe that although the prices of some pesticide products have fallen in the short term, in the long run, under the environment of tighter supervision in Anhuan, the supply and demand of the pesticide industry can be tightened, product prices are expected to rise, and the company's revenue and gross profit margin are expected to improve.
New product capacity is gradually released, looking forward to a new driver of performance growth. In 2018, the company has successfully completed and put into production 10,000 tons of biochemical diquat, 10,000 tons of biochemical VB3, 25000 tons of biochemical pyridine base and 3000 tons of biochemical ammonium phosphine. At the end of 2018, the company signed the investment framework agreement for Chongqing longevity production base project, which intends to invest 1.68 billion yuan to build 20, 000 tons of biochemical glyphosate project. We are optimistic that the company will improve the industrial chain by actively laying out new production capacity and starting a new base. after the above capacity is fully released, the company is expected to further expand its market share by virtue of its capacity and cost advantages and look forward to long-term performance growth.
With the acquisition of Chongqing Zhongbang thickening performance, the synergy effect gradually appears. In 2018, the company completed the acquisition of 100% equity interest in Chongqing Zhongbang with 1.186 billion yuan in 2018. It is promised that the net profit in 2018-2020 will not be less than 6449 million yuan, and the net profit in 2018 will be 68.2 million yuan, exceeding the performance commitment.
Chongqing Zhongbang has 2jin3-dichloropyridine and ZPT production capacity, which forms effective coordination with the company's existing industrial chain. We believe that under the background of limited production and tight supply and demand pattern of dichloropyridine leading enterprises, the performance of the target company is expected to be good, and the performance of the company is expected to be greatly thickened.
Risk factors: increased competition in the industry; lower-than-expected capacity release; declining global demand for pesticides.
Investment suggestion: we are optimistic about the improvement of supply and demand in the long-term pesticide industry, the company can improve the industrial chain through the layout of new production capacity, and long-term performance growth is expected. The net profit of the maintenance company in 2019-21 is estimated to be 702, 876, and 1.083 million yuan, corresponding to 1.21, 1.51, 1.86, respectively, EPS. Maintain the target price of 24.2 yuan (corresponding to 20 times PE in 2019) and "buy" rating.
