For the first time, it was given an "overweight" rating with a target price of HK $6.68. We estimate that the EPS of the company in 2021-2023 will be 0.70 yuan 0.88pm 0.67 yuan respectively, with a growth rate of 137%, 24% and-23%. With reference to the valuation of comparable companies, considering that the valuation center of the Hong Kong stock chemical industry as a whole is lower than A shares, the company is given a price-to-earnings ratio of 8 times. A reasonable valuation of HK $6.68 for China Xinlianxin Chemical Fertilizer in 2021. The target price is HK $6.68, covered for the first time and given an "overweight" rating.
The supply and demand pattern of the urea industry has improved significantly, and the boom will continue. After the clearance of backward production capacity in the urea industry in recent years, the situation of overcapacity has been greatly improved. According to Zhuochuang information data, China's urea production capacity in 2020 was 69.13 million tons, down 6.45% from the same period last year. On the demand side, with the gradual upward price of agricultural products, agricultural demand will increase. Secondly, the construction area of real estate continues to operate at a high level, leading to an increase in demand for synthetic wood-based panels. China's apparent consumption in 2020 was 50.47 million tons, an increase of 7.14% over the same period last year. On the price side, the price of urea has risen to 2179 yuan / ton since October last year, an increase of nearly 19%. The company is a leading coal urea enterprise in the industry, with cost advantage, and will fully benefit from this urea boom.
The prices of agricultural products have risen, the supply of compound fertilizers has tightened, and prices are expected to continue to rise. The price of downstream agricultural products represented by corn has entered the upstream channel, the application proportion of new compound fertilizer is expected to continue to increase, and the demand is expected to expand. The apparent consumption of compound fertilizer in 2020 was 51.34 million tons, an increase of 14.19% over the same period last year. The production capacity of compound fertilizer has decreased year by year, the supply has tightened, and the industrial concentration has increased.
On the cost side, the rise in the price of elemental fertilizer (nitrogen, phosphorus and potassium) is expected to push up the price of compound fertilizer.
The company has the advantage of integration and fully benefits from the upstream prosperity of the industry. The company produces urea, compound fertilizer and other products, through the integration of urea compound fertilizer to achieve cost advantage. At present, the production capacity of urea is 2.3 million tons / year, and that of compound fertilizer is 2.65 million tons / year, which will fully benefit from this cycle.
In addition, the company focuses on product differentiation, on the one hand, it expands sales channels, on the other hand, it preemptively occupies the trillion-level agrochemical service market, and makes products and services into the company's core competitiveness.
Risk hints: the risk of lower-than-expected demand downstream, and the risk of falling prices of urea and compound fertilizer.