The current situation of the company

Affected by the decline in raw material prices and weak downstream procurement demand, the prices of 4Q19 monoammonium phosphate and compound fertilizer have dropped significantly. According to Zhuochuang information data, the average factory price of monoammonium phosphate of 4Q19 Company is 1971 yuan / ton, down 16.3% from the same period last year, and the average factory price of sulfur-based compound fertilizer is 2238 yuan / ton, down 15.6% from the same period last year.

Comment

The prices of 4Q19 monoammonium phosphate and compound fertilizer decreased significantly. The price of sulfur in eastern China of 4Q19 is 25% lower than that of 3Q19, the cost support of monoammonium phosphate is weakened due to the decrease of sulfur price of raw materials, the purchasing demand of compound fertilizer downstream is weak, and the market price of monoammonium phosphate of 4Q19 has dropped significantly. According to Zhuochuang information data, the average factory price of monoammonium phosphate of 4Q19 is 1971 yuan / ton, down 16% from the same period last year and 8% from the previous year. Affected by the depressed prices of downstream agricultural products, the lack of enthusiasm of dealers in preparing fertilizer has led to a continued decline in the market price of compound fertilizer. The average ex-factory price of sulfur-based compound fertilizer in 4Q19 dropped 16% to 2238 yuan / ton compared with the same period last year. We expect 4Q19's monoammonium phosphate and compound fertilizer sales to continue to grow compared with the same period last year, but the profitability of 4Q19's fertilizer business will decline due to falling prices.

The integrated industrial chain is perfect, and the cost of the company is competitive. At the end of June 2019, the company's Xuancheng Mawei Mountain mining technical renovation project entered the stage of formal production and production. We expect that after the project is put into production, the external mining capacity of the company's pyrite will be reduced, the company's raw material supply will be guaranteed and production costs will be further reduced. In addition, Guizhou Lufa is the company's largest phosphate ore supplier, and the company holds a 40% stake in Guizhou Lufa. At present, Guizhou Lufa's main assets are the phosphate rock mining right of 4.56 square kilometers in Mingniwan and the phosphate exploration license of 8.38 square kilometers in Yongwen. Yongwen phosphate rock has now entered the exploration stage, and we expect that the mining volume of Guizhou Lufa phosphate ore is expected to increase gradually in the future. It is of great significance to ensure the supply of phosphate rock and the upstream extension of the company's industrial chain.

Valuation proposal

Due to the decline in the price of chemical fertilizer products, we have lowered our 20-year earnings forecast for 2019 Universe by 32% to 2.95 million yuan, and the company's share price corresponds to the 20-year price-to-earnings ratio of 14max 11.4x and the 20-year market-to-net ratio of 0.9max 0.9x in 2019. The target price will be lowered by 14% to 6 yuan, which is 28% higher than the current stock price. The target price corresponds to the price-to-earnings ratio of 18max 15x in 2019, and the price-to-book ratio of 1.2max to 1.1x in 2019, maintaining the industry rating.

Risk

The prices of monoammonium phosphate and compound fertilizer fell, and sales were lower than expected.