Key points of investment:
Maintain the increase in holdings. Since the price of 5,400 yuan/ton of sugar in Guangxi fell short of expectations, we lowered the company's 2021 EPS to 0.33 (-0.62) yuan. We expect the company's 2022-2023 EPS to be 0.37 yuan, 0.4 yuan, and maintain the target price of 11.08 yuan, corresponding to 33.6 times PE in 2021, maintaining the “increase” rating.
The company disclosed its results for the first quarter of 2021, and the performance was in line with expectations. As the company increased its sugar sales efforts, the year-on-year increase in the company's sugar sales made up for the adverse effects of falling sugar prices, which led to a year-on-year increase in revenue and the company's profit growth. The company's revenue for the first quarter of 2021 reached 4,227 billion yuan, an increase of 50.7% over the previous year, and the profit returned to the mother was 201 million yuan, an increase of 51.39% over the previous year.
Sugar prices are generally improving, helping companies increase their annual performance. Sugar producing countries cut production, and the rise in raw sugar is expected to boost domestic sugar prices. We believe that the impact of the Brazilian drought has led to a decrease in production, India's production and exports have been restricted due to repeated epidemics, the cold tide weather in Europe has reduced sugar production, and the decline in global sugar supply has driven sugar prices to rise. At the same time, domestic sugar prices are affected by the rise in foreign sugar prices and are also expected to rise gradually, thereby boosting the profits of related companies.
Prices rise and costs fall, and the company's profits are expected to improve step by step. The company's sugar business contributes over 90% of revenue. As the sugar cycle becomes more prosperous, the company's profit will gradually increase. Furthermore, the company's competitive advantage continues to strengthen. As the company continues to improve in terms of lean management capabilities, raw material cultivation techniques, sugar source control capabilities, etc., its core competitiveness continues to increase. By improving its own core competitiveness, the company's costs and expenses are effectively reduced, which will also effectively enhance the company's profitability.
Risk warning: the risk of exchange rate changes, the risk of changes in the sugar industry's import policy.