2019 and 1Q20 performance are in line with market expectations
The company announced its 2019 results: revenue of 39.29 billion yuan, an increase of 6.8% over the same period last year, and net profit of 945 million yuan, a decrease of 7.0% over the same period last year, corresponding to 0.60 yuan per share, in line with market expectations. The net profit after deducting non-profit was 840 million yuan, an increase of 17.8% over the same period last year, and the gross profit margin of the company's chemical business increased by 1.77ppt to 25.83%. The company announced 1Q20 results: revenue was 5.997 billion yuan, down 27.6% from the same period last year; net profit from home was 163 million yuan, down 25.2% from the same period last year, corresponding to earnings per share of 0.1 yuan. The main reason is that affected by the epidemic, the company's consumer goods import and export trade and other supply chain business has been blocked.
Trend of development
In 2019, the price of chemical business increased steadily, and the electrolyte production expansion project advanced steadily. In 2019, the company's chemical business revenue was 1.687 billion yuan, an increase of 32.5% over the same period last year; sales volume was 36700 tons, an increase of 32.7% over the same period last year; and the price was basically the same. The company's electrolyte projects under construction include Ningde (40,000 tons / year) and Poland (40,000 tons / year). As disclosed in the annual report, the proportion of investment in the two projects accounts for 83.9% and 47.6% of the budget, respectively. We expect that the project will strongly boost the growth of electrolyte business after the project is put into production.
Improve the supply chain management, the 1Q20 epidemic affects the company's trade business. Revenue from the company's trading business rose 6 per cent year-on-year to 37.536 billion yuan in 2019, while gross profit margin fell 0.83ppt to 11.2 per cent. 1Q20 affected by the epidemic, the company's import and export trade was blocked, dragging down the first quarter results.
Ruitai New Energy, a subsidiary, is to be spun off and listed on the stock market, focusing on developing new chemical materials and new energy business. On April 28, the company announced that it plans to spin off Ruitai New Energy, a subsidiary of Ruitai, to be listed on the gem of the Shenzhen Stock Exchange. after this spin-off, Jiangsu Cathay Pacific will focus on the operation and development of supply chain service business. Ruitai New Energy will focus on new chemical materials and new energy business. Ruitai New Energy had revenue of 1.687 billion yuan in 2019, an increase of 32.4% over the same period last year. Huarong Chemical, a subsidiary of Ruitai New Energy, which mainly deals with electrolytes and silane coupling agents, increased revenue by 32.7% to 1.547 billion yuan in 2019. Revenue from Chaowei New Materials, a subsidiary dedicated to R & D and production of electronic chemicals, increased by 23.0% to 136 million yuan. Through this spin-off and listing, Ruitai New Energy will have a clear positioning, improve financing efficiency and speed up the development of new energy business.
Profit forecast and valuation
Affected by the epidemic, we lowered our profit forecast for 2020 by 11% to $956 million and introduced a profit forecast of $979 million for 2021. The current share price corresponds to a price-to-earnings ratio of 8.8 times 2021 / 8.6 times 2021. Maintain an outperform industry rating and a target price of 8.00 yuan, corresponding to 13.1 times 2020 price-to-earnings ratio and 12.8 times 2021 price-to-earnings ratio, which has 49.0% upward space compared with the current stock price.
Risk.
The global epidemic continues to exceed expectations, capacity expansion is less than expected, and trade is affected more than expected.