Event
The company released the 2019 semi-annual report, during the reporting period, the company achieved operating income of 8.895 billion yuan, an increase of 0.18% over the same period last year; the net profit belonging to shareholders of listed companies was 186 million yuan, down 48.99% from the same period last year.
Comment
Revenue from the fuel ethanol business increased and gross profit margin declined slightly. In the first half of this year, the company's fuel ethanol business achieved an operating income of 4.164 billion yuan, an increase of 17.29 percent over the same period last year, and a gross profit margin of 17.29 percent, down 2.20 percent from the same period last year. From the industry level, the production capacity of new fuel ethanol production enterprises gradually released in the first half of the year, but the new consumption areas were less than expected, resulting in intensified competition in the industry, fuel ethanol in some areas into a price war, superimposed raw material prices continued to rise, and the overall profit of the fuel ethanol industry declined compared with the same period last year.
The reorganization of the company's assets has been completed, and the expansion of production has been promoted in an orderly manner. In 2018, the company purchased 100% equity held by biochemical Investment in biochemical Energy, Biochemistry and Huali by issuing 883 million shares at an issue price of 9.38 yuan per share. The company's current share price is 6.71 yuan, which is 28% off the issue price. The margin of safety is high. The smooth completion of asset restructuring has further consolidated the company's position in the domestic corn deep processing industry. The company's existing fuel ethanol production capacity is 1.35 million tons. It is estimated that in the next three years, the new production capacity will be 1.55 million tons (1.5 million tons of corn fuel ethanol + 50,000 tons of cellulose fuel ethanol), and the capacity expansion will be carried out in an orderly manner.
The national coverage of fuel ethanol is imminent in 2020, and the policy catalysis may accelerate. In the implementation Plan on expanding the production of Biofuel ethanol and popularizing the use of Automotive ethanol gasoline jointly issued by the National Development and Reform Commission and other 15 departments, it is proposed that the full coverage of automotive ethanol gasoline will be basically achieved nationwide by 2020. As time approaches, the promotion and implementation of policies in other provinces and cities is expected to accelerate. According to the plan, the demand for fuel ethanol will reach 12 million tons, the existing production capacity of fuel ethanol is less than 3 million tons, and there may be a gap between supply and demand of 5 million tons. The market share of the company has increased significantly after the restructuring, and it is expected to be the first to benefit.
Maintain the overweight rating
It is estimated that the EPS from 2019 to 2021 will be 0.13,0.27,0.47 yuan respectively, corresponding to the closing price of 6.71 yuan on August 30, and the PE will be 50,24,14 times respectively.
Risk hints: policy promotion is not as strong as expected; fuel ethanol prices are falling; corn prices are rising.
