Main points of investment:
The company recently released its 2010 annual report and the first quarter of 2011 performance report, which showed that its operating income reached 2.785 billion yuan during the reporting period, an increase of 23% over the same period last year, which has exceeded the level of 2007. But profitability is not the same as it was then, with a gross margin of 14.1 per cent of what it was in 2007. In 2010, the net profit was 33 million yuan, or 0.07 yuan per share.
The key to the turnaround of the company's performance in 2010 lies in the enhancement of the profitability of the BDO industry chain. In 2010, the sales revenue of BDO products increased by 30%, and the gross profit margin increased from 9.5% to 23.4%. The average price of BDO products rose about 50 per cent in 2010 compared with the same period last year, especially when the price remained above 20, 000 yuan per ton in the fourth quarter of last year, basically the same as the level in 2007. However, due to the rising cost of raw materials such as calcium carbide, BDO's profitability has increased significantly, but it is far from the highest point of the year.
For the trend of BDO in 2011, we think it is more likely to maintain more than 20, 000 yuan per ton, and the rise in BDO prices has created favorable conditions for the company to launch 75000 tons of maleic anhydride BDO. However, the specific situation still needs to be followed up and studied.
Other projects of the company, such as 200000 tons of crude benzene refining and 30, 000 tons of PTMEG, etc., with the arrival of the era of high oil prices, the comparative economic benefits of the products began to reappear. It is expected to be the driving force for the company's growth in the next three years.
We expect earnings per share in 2011, 2012 and 2013 to be 0.27 yuan, 0.41 yuan and 0.73 yuan respectively, with corresponding price-to-earnings ratios of 45.9 times, 31.0 times and 17 times, respectively. Although the price-to-earnings ratio in 2011 is higher than the chemical industry average, because the company is in the process of recovering step by step from the bottom of performance, future growth is likely to exceed expectations, so we give it a "recommended" rating.