2012 performance Review

The results of the six countries Chemical Industry in 2012 announced that the annual operating income was 5.94 billion yuan, an increase of 77% over the same period last year; the net profit attributed to shareholders of listed companies was 71 million yuan, down 46% from the same period last year; and the income per share was 0.14 yuan, which was lower than we expected. In 2012, the company plans to pay a cash dividend of 1 yuan (including tax) for every 10 shares, with a distribution ratio of 73% (2011: 39%).

The acquisition of Jiangxi six countries has been completed, and the income of phosphate and compound fertilizer is growing rapidly. In 2012, the company completed the acquisition of six countries in Jiangxi, with a total production of 1.75 million tons of phosphate and compound fertilizer, an increase of about 50% over the same period last year, and a 77% year-on-year increase in operating revenue. However, due to the sharp rise in the price of upstream raw materials, the gross profit margin of the company's diammonium and compound fertilizer business fell 8.2 and 1.6 percentage points respectively compared with the same period last year.

Administrative and financial costs have increased significantly, and the integration process is still under way. After the acquisition of the six countries in Jiangxi, the company's administrative and financial expenses have risen sharply, up 109% and 327% respectively over 2011. In 2013, the company will continue to take measures to reduce costs and increase efficiency, especially pay close attention to the control of management costs, which is expected to be significantly reduced.

The completion of the acquisition is expected to quickly improve the performance of the company. The company's 280000-ton synthetic ammonia project has been put into production in February, 13 years, which will greatly increase the self-sufficiency rate of phosphate fertilizer raw materials and ensure the stable increase of production load. At the same time, the successive completion of 240000 tons of diammonium in Hubei and 200000 tons of ammonium sulfate in Guoxing Chemical Industry will be an important guarantee for the company to achieve the goal of producing and selling 2.2 million tons of chemical fertilizer products in 2013.

Valuation and suggestion

We expect the company to make a profit forecast of 0.20 yuan and 0.25 yuan from 2013 to 2014, respectively.

The current share price is 42x and 34x respectively for PE from 2013 to 2014, maintaining a "neutral" rating.

Risk 1, Jiangxi Guixi integration progress is lower than expected; 2, fertilizer demand weakens; 3, market valuation center downside risk.