On October 28, 2019, Hunan Haili (600731) released a report for the third quarter of 2019: the company achieved operating income of 1.542 billion yuan from January to September, + 46.48% year-on-year; net profit of 77.8769 million yuan, + 587.89%; and non-net profit of 928.768 billion yuan, + 85.52%. Among them, the company achieved operating income of 555 million yuan in the third quarter, + 30.62% year-on-year, 54.9892 million yuan in net profit, + 1139.7% in the same period last year, and 72.0061 million yuan in net profit after deducting non-profit, + 102.33% in the same period last year.
In the third quarter, there was an one-time non-operating expenditure of 16.8972 million yuan because of the "three supplies and one industry". Therefore, deducting non-profit can better reflect the company's actual operating performance.
The reasons for the increase in the company's performance are as follows: 1) the volume and price of the main products such as carbofuran and methomyl have risen. The average selling price of carbofuran from January to September 2019 is 997 million yuan / ton, year-on-year + 21.13%, sales volume 2643.77 tons, year-on-year + 45.75%. The price of methomyl is 866 million yuan per ton, year-on-year + 38.09%, sales volume 1834.46 tons, year-on-year + 6.19% 2) star products such as methomyl have been successfully put into production and are expected to bring about 300 million yuan in revenue to the company this year.
In addition, the company plans to invest in the establishment of a wholly-owned subsidiary Ningxia Haili Technology Co., Ltd., with a registered capital of 100 million yuan. Ningxia Haili will gradually build the Haili Ningxia production base project with self-raised funds. after the project is completed, it will become a new profit growth point of the company and further enhance the company's core competitiveness.
Main points of investment:
Domestic carbamate pesticide leader, the production barrier is very high. The company's main business is carbamate pesticides (with a production capacity of more than 10,000 tons), organophosphorus pesticides (with a production capacity of more than 10,000 tons), crude drugs and preparations of heterocyclic pesticides, and a production capacity of 50,000 tons of upstream phosgene, as well as the production and supply capacity of major core intermediates. Among them, the main varieties of carbamate pesticides are: carbofuran (sales revenue accounts for 17% of 2018 revenue), methomyl (13%), thiomethyl (8%), carbaryl (8%), carbosulfan (5%) and propoxur (4%). Together, it accounts for more than half of the company's revenue.
The company is the main supplier of carbamate pesticides in China, and the production barriers are extremely high: first, the initial raw material is phosgene, which is a highly toxic product, and it is forbidden to build new production capacity in China; second, the core intermediate isocyanate value (MIC) and alkylphenol are dangerous and difficult to process, the former is highly toxic and unstable and requires low temperature storage, while the latter, such as furan phenol, has only two domestic suppliers. Third, it is difficult to register products. Carbamate pesticides are highly toxic and banned in some countries. China's Ministry of Agriculture no longer accepted the registration of products such as carbofuran and methomyl as early as 2011.
Under the safety supervision and environmental protection rectification, the supply and demand pattern was optimized, the prices of leading products continued to rise, and the performance of Q1 increased greatly in 2019. In recent years, under the rectification of safety supervision and environmental protection, the production capacity of the main competitors is limited or withdrew from the market, the company is the main supplier of carbamate pesticides in China, and the price of products continues to rise. According to the operating data disclosed by the company, the tax-free price of carbofuran, which represents the product, increased by 56.7% from 60,000 yuan / ton in 2017Q1 to 94000 yuan in 2018Q4, while methomyl increased by 70% from 50,000 yuan / ton to 85000 yuan / ton in the same period. As of mid-April 2019, the market quotation of carbofuran has reached 110,000 yuan / ton.
The increase in product prices has led to an improvement in profitability. In 2018, affected by the demolition of Zhuzhou subsidiaries, the company's net profit attributed to the parent company was only 51.4984 million yuan (yoy + 23.5%), but the annual report revealed that the continuing operating net profit reached 138.486 million yuan (yoy + 60%). In the first quarter of 2019, the company disclosed that the return net profit was between 2875.6 and 32.263 million yuan (yoy + 310-360%), and the high probability of performance inflection point has come.
The national reform dividend was released and will be successfully issued in 2018, with the three-fee rate reduced by 4.4 percentage points.
The company has planned to increase since 2016, and by January 2018, the company has issued 27.9086 million non-public shares at 7.53 yuan per share, accounting for 7.87% of the total share capital of the company after the non-public offering, and raising 206 million yuan after deducting the issuance expenses. Among them, the major shareholder Haili Group subscribed for 8.4756 million shares, accounting for 30.4% of the total issuance; Hunan SASAC subscribed for 3.989 million shares, accounting for 14.3%; and the company's employee stock ownership plan (company management and current employees) subscribed for 5.073 million shares, accounting for 18.2%. The total subscription of the three is 62.9%, and the stock lock-up period is 36 months (the ban will be lifted in February 2021).
Before 2016, the company's three-fee rate has been as high as 20%. Since then, the company has reduced its cost and efficiency, and the three-fee rate has dropped for three consecutive years. By 2018, the three-fee rate has dropped to 13.7%, down 4.4 percentage points from the same period last year. Of this total, management costs fell by 1.9 percentage points. The company has 1837 employees in 2018, a decrease of 332 compared with 2017.
The star project has been put into production smoothly, the reserve project is rich, and the growth is strong. Hunan Haili cooperates with German Bayer to build a star project: 4000 tons / year methomyl was put into production in 2018 and has achieved stable mass production by the first quarter of 2019. It is expected to bring the company about 300 million in revenue for the whole year, accounting for more than 20% of the total revenue in 2018. The company's reserves of salicylonitrile, newly expanded carbosulfan, methyl pyrimidine and other pesticides will also be put into production from 2019 to 2020, becoming a new profit growth point for the company. In addition, the company plans to invest in the establishment of a wholly-owned subsidiary Ningxia Haili Technology Co., Ltd., with a registered capital of 100 million yuan. Ningxia Haili will gradually build the Haili Ningxia production base project with self-raised funds. after the project is completed, it will become a new profit growth point of the company and further enhance the company's core competitiveness.
Profit forecast and investment rating: maintain the "buy" rating. The company is the leader of carbamate pesticides in China with high production barriers. In recent years, under the storm of safety supervision and environmental protection, competitors have gradually withdrawn, and the company's products have gradually increased. At the same time, the company has taken advantage of national reform to reduce costs and increase efficiency, and its profitability has gradually improved. Due to the impact of the impairment of subsidiaries in the second quarter, we have slightly reduced our profit forecast. It is estimated that the EPS of the company from 2019 to 2021 will be 0.44,0.71 and 0.79 yuan respectively, and the PE multiple of the corresponding stock price will be 16.85,10.41 and 9.38 respectively. We are optimistic about the long-term development of the company and maintain its "buy" rating.
Risk tips: production safety and environmental protection risks, subsidiary relocation affects performance, downstream demand for products is lower than expected, product prices fall, and new capacity is less than expected.
