International oil prices may accelerate into the upward channel, raw material prices remain low, and profits are expected to improve tensions in the Middle East in recent days. Iraq and Iran are the second and third largest oil producers and exporters of OPEC respectively. If the geopolitical crisis continues to ferment, oil supply will be interrupted or reduced, global oil supply will be scarce, and Brent crude oil prices may accelerate into the upward channel. If oil prices continue to rise in 2020, fuel ethanol prices are also expected to continue to rise.
Since the state cancelled the purchase of corn protection price in 2016, corn prices have been falling in recent years due to the grain price gap at home and abroad and high domestic inventories, and are currently at the bottom, affected by African classical swine fever. It is expected that the demand for feed corn will decline in 2020 compared with the same period last year, and we believe that corn prices will remain low. In addition, the company undertakes the important task of removing part of the old grain, and actively develops and promotes the industrialization process of cellulosic ethanol, continuously reducing cost and increasing efficiency.
The policy continues to catalyze, and the promotion scope of ethanol gasoline continues to expand.
In September 2017, the National Development and Reform Commission, the Energy Bureau and other 10th five-year departments jointly issued the "implementation Plan for expanding the production of Biofuel ethanol and promoting the use of Automotive ethanol gasoline". It is planned that the key areas for the prevention and control of air pollution in Beijing, Tianjin, Hebei and the surrounding areas, such as the Yangtze River Delta and the Pearl River Delta, will begin to promote fuel ethanol in 2018, achieve full coverage by 2019, and basically achieve national coverage by 2020. By the end of October 2019, China had closed and promoted ethanol gasoline in three northeastern provinces and Henan, Anhui, Guangxi and Tianjin, and semi-closed promotion of ethanol gasoline in 50 prefectures and cities in Hebei, Shandong, Jiangsu, Inner Mongolia, Hubei, Guangdong and Shanxi provinces. We believe that with the expansion of the scope of promotion of automotive ethanol gasoline in China, the leading enterprises are expected to benefit directly.
Fuel ethanol leading asset injection is completed, is expected to usher in the same rise in volume and profit!
In October 2018, the company issued shares to purchase assets approved by the CSRC. After the company completed the asset injection, the company's fuel ethanol production reached 1.35 million tons, with a market share of more than 40%. At the same time, the main supply is realized in the closed areas where the designated enterprises are located (Heilongjiang, Anhui, Guangxi, northern Jiangsu, southern Shandong and other places). We believe that with the continued expansion of the company's production capacity in the future and the rise in fuel ethanol prices brought about by the rise in crude oil prices, the company may usher in a rise in volume and profit, showing the leading value of the industry!
Investment suggestion
Due to the completion of the company's major asset restructuring project in 2018, the scope of the consolidation of the company's statements has changed greatly. We believe that with the widening of the "crude oil-corn" price scissors gap, the company's profitability is expected to continue to improve in the future. It is estimated that in 2019-2021, the company will achieve an income of 183.4pm 20613max 23836 million, a return net profit of 3.26pm 427max 635 million, and an EPS of 0.18ppm 0.23x0.34 yuan. Considering the company's leading position in fuel ethanol, it is given a "buy" rating.
Risk hint: sales are not as expected, policy promotion is not as expected, and product price risk
