Affected by the suspension of production in the park, the company's net profit fell sharply in the past 18 years, and the rise in the price of 19Q1 products led to a pick-up in performance. Although the production and marketing level of the company is low due to the short-term impact of environmental protection and safety accidents in northern Jiangsu, we are optimistic that the company will achieve long-term performance growth by virtue of its leading position in the industry. The forecast company's EPS for 2019-21 will be 0.52, 0.96, and 1.15 yuan, lowering its target price to 14.4 yuan, maintaining a "buy" rating.
The impact of the suspension of production in the park is huge, and the 18-year net profit has dropped sharply. Affected by the overall shutdown of the Guannan Chemical Park in Lianyungang, where the company's main production equipment is located, the production and sales of the company's main products have dropped sharply in 18 years, of which the output of dyes, dye intermediates and pesticides decreased by 70%, 76% and 84% respectively, and sales decreased by 50%, 45% and 78% respectively. Benefiting from the rise in product prices, the gross profit margin of the company's main products has increased in varying degrees, with annual revenue of 2.1 billion yuan,-36% compared with the same period last year. Affected by the suspension of production, the company's management expenses and asset impairment losses have increased significantly, achieving a net profit of 160 million yuan,-71% compared with the same period last year.
Product prices rose sharply, and Q1 performance rose slightly in 19 years. Affected by the suspension of production of environmental protection, the price of anthraquinone dyes, the company's main products, has risen sharply. The average prices of disperse, reductive and solvent dyes have increased by 49%, 117% and 89% respectively over the same period last year, although sales have dropped sharply compared with the same period last year. Sales revenue fell 22% in the first quarter compared with the same period last year, but the increase in gross profit margin led to a 5% increase in net profit.
High-end dyestuff subdivision leader, the industry position is stable. Anthraquinone dyes are high-end products in the variety of dyes, and the average price of the company's main products has long been higher than that of ordinary dyes. Among them, anthraquinone disperse dyes and vat dyes, the company is firmly in the leading position in the industry, with a market share of more than 30%. The stable customer structure and high-end products also lead to the company's gross profit margin in the dye industry.
Limited by the supervision of Anhuan in northern Jiangsu in the short term, we are optimistic about the development and layout of the company in the long term. Although the safety accident in northern Jiangsu had a great impact on the start-up of the company's main production equipment in the short term, affecting the production and marketing level of the company's dyes; in addition, the pesticide assets acquired by the company could not be produced normally, and the company also adjusted its commitment performance. However, the leading position of the dye subdivision industry of the company is stable, and the industrial chain is complete. Once production returns to normal, profitability will remain at a high level; in addition, the repurchased shares will also be used as equity incentives or employee stock ownership to ensure the stable development of the company for a long time.
Risk factors: the progress of plant resumption is not as expected; the demand for products has dropped sharply; and the new capacity has fallen short of expectations.
Investment suggestion: due to the lower-than-expected recovery progress of the plant in the short term, the company's 2019-20 net return profit forecast is reduced to 554 million yuan (the original forecast is 883 million yuan 941 million yuan), and the new 2021 net profit forecast is 661 million yuan, corresponding to the 2019-21 EPS is 0.52 trillion 1.15 yuan respectively. Considering the company's leading position in the high-end dye industry, we are optimistic about long-term performance growth. Give the company 15 times PE in 2020, lower the target price to 14.4 yuan (the original target price is 21 yuan), and maintain the "buy" rating.