Events. Sinochem International plans to buy 39.88% of Yangnong Group's stake in Syngenta Group with 7.6 billion yuan in cash, while Yangnong Group plans to sell its direct 36.17% stake in Yangnong Chemical to Syngenta Group for 10.2 billion yuan in cash. After the completion of the transaction, Sinochem International will hold a total of 79.88% of Yangnong Group, further focusing on the fine chemical industry with new chemical materials as the core, while Yangnong Group will no longer directly hold Yangnong Chemical shares. Yangnong's controlling shareholder will be changed to Syngenta Group.
The main products of Yangnong Group are all kinds of key chemical intermediates, such as aromatic hydrocarbon chlorination and nitration derivatives, aromatic amine derivatives and so on, including chlorobenzene, dichlorobenzene, trichlorobenzene, nitrochlorobenzene, aniline, o-phenylenediamine, 2-dichloroaniline, epoxy resin, epichlorohydrin and other chemical products. In 2018, 2019 and the first three quarters of 2020, the net profit of Yangnong Group was 409 million yuan, 472 million yuan and 455 million yuan respectively.
Yangnong Group is currently building 180,000 tons / year epoxy resin project, 650,000 tons / year phenolone project, Jiangsu Ruiheng (Lianyungang) C3 industry first phase project (including C3 first phase public auxiliary project and BPA project), Jiangsu Ruizhaoke (Lianyungang) high purity chlorine gas and ammonia water project, Jiangsu Ruisheng (Yizheng) 5000 ton para-aramid project, etc. The company plans to build an advanced material product chain through the construction of industrial chains such as C2/C3 functional materials, epoxy resin, ABS, special aramid and nylon 66.
Promote industrial integration and adhere to the development strategy of "doing both addition and subtraction". Over the years, the company has acquired a large number of high-quality assets through investment and mergers and acquisitions, including mergers and acquisitions holding Shengao Chemical, Yangnong Group, Sinochem Plastics, Sinochem Jiangsu, Sinochem Qingdao, Elix Polymers, Junsheng New Energy, etc., laying a good foundation for the smooth realization of industrialization transformation. At the same time, the company implements the industrial integration strategy, conducts continuous and in-depth research on the industries in which the main business is located, as well as industries and products with extended cooperation, finds strategic opportunities, organizes professional evaluation and analysis for key projects, and fully studies and demonstrates business coordination to promote M & An integration. Adhering to the development strategy of "addition and subtraction", the company cleaned up and withdrew the business and low-value projects that did not meet the requirements of the company's strategic transformation, which not only recovered part of the cash and realized the investment income, but also promoted the continuous optimization of the company's business portfolio.
Profit forecast and valuation range. We estimate that the net profit of the company in 2020-22 is 544 million yuan, 630 million yuan and 685 million yuan respectively, and the corresponding EPS is 0.20,0.23,0.25yuan respectively. With reference to the valuation of comparable companies in the same industry, we think that the reasonable valuation is 30-33 times PE in 2021, corresponding to the reasonable value range of 6.9-7.59 yuan, maintaining the "better than the market" investment rating.
Risk tips: risk of price fluctuation of raw materials and products; risk of stringent safety and environmental protection policies; macroeconomic downturn.