Main points of investment
Supply and demand resonate with cost, and the industry cycle goes up.
Driven by demand and rising costs, the prices of urea, compound fertilizer, melamine, methanol and dimethyl ether have risen by 26%, 14%, 151%, 67% and 41% respectively since the beginning of 2021, with a net increase of 480,300,6750, 1020 and 1173 yuan per ton. In the short and medium term, it is expected that the price of urea industry chain will remain at a high level. Although the rise in coal prices has led to a rise in urea costs, the profitability of enterprises has been improved because the increase in raw material prices is less than the increase in the price of end products, boosting the gross profit center of products such as urea. It is estimated that the average gross profit per ton of the urea industry has increased by about 50% over January 2021 to the level of 600-700 yuan.
Jiujiang Base is put into production and layout of South China Market
The company's third production base in Jiujiang was successfully put into production in February 2021. The completed production capacity is 60W tons / year for synthetic ammonia, 52W tons / year for urea and 40W tons / year for dimethyl ether. South China is the area with the largest net inflow of urea and compound fertilizer, in which the price of urea is 150 yuan / ton higher than that in other areas. The company's layout of the South China market fills the gap of urea manufacturers in 6 provinces and cities in the south. In addition, the resources along the Jiujiang River are superior, with a convenient transportation network dominated by the Yangtze River waterway, and the waterway has obvious advantages.
Leading in the industry of high-quality production capacity and obvious cost advantage
The company adopts coal water slurry urea production technology, and the production capacity using the same advanced technology in the industry accounts for only 46%, and the company has reached 100% advanced technology. In the context of carbon neutralization, the current industry has a backward production capacity of about 1400W tons of fixed beds, which is expected to accelerate clearance within 2-3 years. Thanks to the application of advanced technology, the production cost of urea products of the company is 15% lower than the average production cost of the industry.
For the first time to cover the "buy" rating, the target price of HK $4.36 the company ploughed the urea industry chain, rich in downstream products. In the period when the prosperity of the industry is on the rise and the new base of Jiujiang has been put into production, we judge that the company has entered the stage of profit release. It is predicted that the operating income of the company from 2021 to 2022 will be 125.77 yuan and 14.343 billion yuan respectively, an increase of 20.41% and 14.04% respectively over the same period last year; and the net profit of the parent company will be 7.09 yuan and 836 million yuan, up 103.83% and 17.89% respectively over the same period last year. Referring to the range of 5-7 times the median PE of the company's history, we gave the company 6 times the target PE in 2021, corresponding to the target price of HK $4.36, a 24.31% increase over the current price, covering the "buy" rating for the first time.