Items:
The company released its three-quarter report for 2018 on October 25, 2018. During the reporting period, the company realized operating income of 1.644 billion yuan, down 23.76% from the same period last year, and realized net profit of 274 million yuan, down 40.32% from the same period last year, mainly due to the suspension of production by subsidiaries. In this regard, our comments are as follows:
Comments:
The subsidiary will resume production soon, and the business will resume healthy operation. In order to cooperate with the environmental protection work of the Guannan county government, the company's eight subsidiaries (accounting for 82.85% of the company's operating income in 2017) have completely suspended production and rectification since April 28, resulting in an overall decline in the company's performance in the first three quarters. The company's revenue in the third quarter was 431 million yuan, down 24.96% from the same period last year, while the net profit returned to its mother was 85.6842 million yuan, down 42.59% from the same period last year. On October 12, the subsidiaries Hua'er Chemical, Jiangsu Yabang Lianyungang Branch and Yabang acid-making enterprises received notice from the government to resume production and will resume production soon. Together, the operating income of the above three subsidiaries accounted for 62.97% of the company's 2017 operating income, and the combined net profit accounted for 96.44% of the company's 2017 net profit. Due to the shortage of supply in the market, the price of dyes remains high at present, and the resumption of production by subsidiaries will greatly improve the performance of the company. We judge that the company has passed the most difficult period and its performance will gradually improve.
Stabilize the leading position of anthraquinone dyes and create an integrated advantage. The company is the leader of anthraquinone dyes in China, with a market share of more than 35% in anthraquinone dyes, ranking first in the industry, and more than 50% in the field of anthraquinone disperse dyes. The company signed a "letter of intent" with Xuzhou Kaida Chemical on September 6 to reach a preliminary intention on the company's proposed acquisition of Keda Chemical, which may further enhance the company's market voice. At present, the company has a complete industrial chain system of raw materials, intermediates and products, and has advantages in product quality and cost control; the company develops circular economy in the park, forming diversified development of sulfuric acid business, thermoelectric projects, chlorine business, waste acid reuse and other businesses.
Acquire Yadong Chemical to promote the development of pesticide business. In February 2018, the company acquired a 70.60% stake in Jiangsu Henglong crop Protection Co., Ltd., and announced on October 13 that it planned to acquire a 100% stake in Ningxia Yadong Chemical Co., Ltd. with 132.5 million yuan. This will help to further promote the strategic layout of the company in the pesticide business sector and improve market competitiveness. Affected by the environmental protection policy, the price of pesticide products is high. Under this background, the pesticide sector will become a new profit growth point of the company.
Risk factors: 1) the resumption of production of the other five subsidiaries is not as expected; 2) the price of anthraquinone dyes and intermediates has dropped significantly; 3) the promotion of new projects and the integration of pesticide sectors are not as expected.
Maintain a "buy" rating. Prior to this, due to the impact of environmental protection rectification, the company's eight sub-companies stopped production and rectified, the company's performance fell sharply, and the company's share price also fell rapidly. This time, the government of Guannan County has approved the resumption of production of three major subsidiary (branch) companies of the company. We judge that the resumption of production of these three companies will promote the company to return to the track of healthy development, and the adverse effects of subsequent shutdowns will be ruled out. We are optimistic about the coordinated development of many businesses of the company for a long time. Therefore, the maintenance company 2018 / 20119 EPS for 2020 is estimated to be 0.97 / 1.53 / $1.63. Maintain the target price of 21 yuan and the "buy" rating.