Incident: The company released its report for the third quarter of 2020. It achieved operating revenue of 1,421 million yuan in the first three quarters, an increase of 58.16% over the previous year, net profit of 102 million yuan, an increase of 429.97% over the previous year, net profit of 875,255 million yuan after deduction, an increase of 14676.12% over the previous year. Among them, the third quarter achieved operating income of 465 million yuan, an increase of 71.90% over the previous year, Guimu's net profit was 30.3068 million yuan, an increase of 52.64% over the previous year, and Guimu's net profit was 21.3187 million yuan, an increase of 57.60% over the previous year.
Comment:
Product prices declined, and Q3 single-quarter earnings declined month-on-month. Prices of the company's vitamin products declined month-on-month. According to Wind information, the average prices of VB1/VK3/VB5 in the third quarter were 159 yuan/kg, 85.5 yuan/kg, and 83.3 yuan/kg, respectively, down 10.17%, 26.70%, and 74.25% month-on-month. Due to falling product prices, the company achieved operating income of 465 million yuan in the third quarter, a decrease of 6.36% from the previous quarter, the gross profit margin was 22.94%, a decrease of 18.14pct from the previous quarter, and the net profit of the mother was 21.3187 million yuan, a decrease of 41.41% from the previous quarter.
Projects such as diphenol and derivatives, and iodine contrast agents are expected to enter the harvest period. The company invested in the construction of two projects for phenol and derivatives and iodine contrast agents in Jishan Industrial Park in Pengze, Jiangxi. Among them, the annual output of 20,000 tons of phenyl diphenol and the commissioning of the 31,000 tons of phenol derivatives projects can make the company a strong competitor in the global hydroxyphenol industry chain and increase the company's market influence in the fields of food additives and feed additives. The total investment of the project is 1.26 billion yuan. The company expects to achieve annual sales revenue of 1,630 million yuan and net profit of 191 million yuan after delivery. 1000 tons of iodine contrast agents and products related to the intermediate project are used for enhanced CT imaging tests. After production, the company will add iodine contrast agent APIs and intermediate products on the basis of the existing single vitamin API business to achieve a strategy of vertical integration from fine chemicals to pharmaceutical intermediates and pharmaceutical raw materials. The total project investment is 320 million yuan. The company expects to achieve annual sales revenue of 970 million yuan and net profit of 129 million yuan after delivery.
At present, both projects have met the conditions for commissioning. Among them, iodine contrast agent API products still need to complete relevant reviews, approval or certification before they can be marketed and sold in different market regions around the world. As production capacity for iodized contrast agents and phenol projects is gradually put into operation, the company's performance is expected to enter a period of growth.
Fundraising projects open up space for the company to grow. The company will raise no more than 1.20 billion yuan of additional capital for the construction of a natural fragrance project with an annual output of 30,000 tons, the construction of the Brother Science and Technology Research Institute, and supplementary working capital. The natural fragrance project with an annual output of 30,000 tons is committed to building a complete turpentine industry chain. The product structure is perfect and has strong comprehensive competitiveness. The total project investment is 889 million yuan, and the construction period is 3 years. The company expects to achieve annual sales revenue of 1,531 million yuan and net profit of 206 million yuan in the first year after delivery. The total return on investment (after tax) is 23.20%, and the payback period (excluding the construction period) is 54 years. The project was constructed in two phases. The first phase of the project built 6,000 tons of dihydrolauryl alcohol, 500 tons of α-terpineol and 5,300 tons of pine oil, 2000 tons of laurene, totaling 16,800 tons, and the second phase built 1,000 tons of laurene, 1,000 tons of isolorbyl acetate, 3,000 tons of amberone, 8,000 tons of synthetic camphor and 200 tons of sandalwood ether. The total products of the second phase of the project were 13,200 tons. The company's private fund-raising was approved on August 25, 2020, and the construction of new projects is expected to open up space for the company to grow.
Profit forecast and rating: The company's net profit for 2020-2022 is estimated to be 126/2.02/298 million yuan respectively, and the corresponding PE is 46.2/28.9/19.5 times respectively. Since the company's new Jiangxi project is expected to enter the harvest period, the fund-raising project opens up room for growth and maintains the “buy” rating.
Risk warning events: falling prices of vitamin products; construction and sales of the Jiangxi Phase II project falling short of expectations; risk of fund-raising projects falling short of expectations.