Performance review

Maintain to outperform the industry

1H2019 performance is in line with our expectations

Sirte announced 1H2019 results: revenue of 1.406 billion yuan, an increase of 15.07% over the same period last year, and net profit of 103 million yuan, an increase of 0.5% over the same period last year, corresponding to 0.14 yuan per share, which is in line with our expectations. The deduction of non-net profit was 88.78 million yuan, down 2.1% from the same period last year.

2Q19's revenue was 888 million yuan, up 20% from 71% month-on-month, and the net profit from its mother was 60 million yuan. Compared with-2% month-on-month, the decline in net profit was mainly due to the decline in product prices leading to a decline in gross profit margin (1.6pct) compared with the same period last year. At the same time, the investment income decreased by 16.2 million yuan as a result of the temporary suspension of production due to the upgrading and transformation of joint ventures.

Trend of development

The increase in compound fertilizer sales led to an increase in income, and the gross profit margin in overseas markets fell sharply. The sales of compound fertilizer and monoammonium phosphate of 1H19 Company totaled more than 600,000 tons, an increase of about 100000 tons over the same period last year, mainly due to the increase in compound fertilizer sales, which led to an increase of 24.1% to 790 million yuan in compound fertilizer revenue from the same period last year. Due to the decline in compound fertilizer prices, the gross profit margin decreased by 4.84pct to 17.6% year-on-year. The price and sales of 1H19 monoammonium phosphate declined compared with the same period last year, resulting in a 7.96 per cent year-on-year decline in revenue and a 3.81pct decline in gross profit margin to 19.66 per cent compared with the same period last year. In terms of market segments, 1H19's domestic market revenue rose 14.92% year-on-year to 1.23 billion yuan, gross profit margin rose 0.19pct to 23.5% year-on-year, overseas market revenue increased 16.1% to 176 million yuan, and gross profit margin fell 6.88pct to 11.81%.

The pyrite project is put into production to further improve the industrial chain. At the end of June, the company's Xuancheng Mawei Mountain mining technical renovation project entered the stage of formal production. After the project is put into production, the external mining volume of the company's pyrite will be reduced, the raw material supply of the company will be guaranteed and the production cost will be further reduced. At the same time, the mining of associated minerals such as zinc, lead, copper and silver will enhance the company's profitability.

Increase capital Guizhou Lufa guarantee company phosphate ore supply. Guizhou Lufa is the largest phosphate ore supplier in Sirte, and the proportion of shares held by Guizhou Lufa will reach 40% after capital increase, which is of great strategic significance to ensure the supply of phosphate ore and the upstream extension of the company's industrial chain.

Profit forecast and valuation

Due to the decline in product gross profit margin, we lowered our 2019 net profit forecast by 5% to 342 million yuan, maintaining the 2020 net profit forecast of 435 million yuan. The company's current share price corresponds to a price-to-earnings ratio of 11.1 pound 8.7x in 2019 / 20. Lower the target price by 6% to 7 yuan, which is 32.1% higher than the current share price, and the target price corresponds to the price-to-earnings ratio of 14.7 more than 11.5x in 2019, maintaining an outperforming industry rating.

Risk.

The price of phosphate fertilizer and compound fertilizer decreases, and the risk of the change of shareholding.