The first half of 2020 results are in line with our expectations.
The company announced its results for the first half of 2020: revenue of 8.17 billion yuan, up 6.0% from the same period last year; net profit of 380 million yuan,-38.1% of the same period last year, in line with expectations. During the performance period, due to the negative impact of the epidemic and the cost pressure caused by rising corn prices, the company's comprehensive gross profit margin was 18%, down 3.7ppt, and net profit margin was 4.6%, down 3.4ppt from the same period last year.
Trend of development
Affected by the epidemic, the price of monosodium glutamate is low, domestic demand has recovered moderately, and prices are expected to rebound in the second half of the year. Monosodium glutamate industry oligopoly structure is stable, CR3 about 80%, a total market share of nearly 90%.
The overall supply of the industry slightly exceeds demand. Since the beginning of the year, the epidemic situation at home and abroad has spread and fermented one after another. 50% of the downstream demand structure of monosodium glutamate comes from food processing and additives, and 30% of it comes from catering consumption. The epidemic has led to a reduction in consumers eating out, overall demand has been damaged, and the price of monosodium glutamate is low. At present, the average price of monosodium glutamate in the market is 7100 yuan per ton, rebounding from 400 yuan per ton last week and down 10.1 per cent from the same period last year. In the second half of the year, with the moderate recovery of demand, the improvement of demand month-on-month and strong cost support, monosodium glutamate prices are expected to rebound. Looking forward to next year, terminal demand will rebound sharply compared with the same period last year, industry coordination will improve, and monosodium glutamate prices are expected to rise.
Lysine, threonine product prices hit bottom and rebound, with downstream demand warming is expected to rise. The current average market price of threonine is 8150 yuan / ton, up 7.2% over the same period last year. Year-to-date prices have risen 16.4%. The average YTD price in 2020 is 7921 yuan / ton, up 2.6% from the same period last year. The current market average price of lysine is 7350 yuan / ton, up 9.7% over the same period last year. Year-to-date prices have risen 7.8%. The average YTD price in 2020 is 7188 yuan / ton, down 2.3% from last year. Since last year, due to the impact of concentrated production capacity and superimposed African classical swine fever in the domestic amino acid industry, there has been a serious imbalance between supply and demand, product prices have been falling all the way, and the whole industry is below the complete cost line. Due to the COVID-19 epidemic in the first half of the year, some small production capacity has not yet fully resumed production, and amino acid prices have rebounded slightly. In the second half of the year, with the repair of pig data, the demand for amino acids is improving, and product prices are booming.
Stocks are rapidly de-stocked, and corn prices are expected to rise moderately in the second half of the year. According to the world granary, it is expected that the number of state-owned corn stocks will further drop to 34.79 million tons in 2020. Through the supply-side structural reform, China's corn prices have been in an upward channel, and the corn area in non-dominant planting areas has been reduced. the decline in planting area has led to a decline in national output, and downstream feed processing demand and fuel demand have driven up the overall demand, and we expect corn prices to rise moderately in the second half of the year. After the new corn is listed in the fourth quarter, it may be alleviated. It is recommended to pay attention to the rotation of state storage and the progress of new corn listing. The company plans to complete the synthetic ammonia matching of the production plant in 2020 to improve the degree of integration and reduce the procurement cost of raw materials; two special railway lines have also been put into use, which will further reduce logistics costs and improve production efficiency.
Profit forecast and valuation
Due to the pressure on product prices and the continuous rise in raw material prices, we have reduced our net profit by 9.3% in 2020 / 2021 to 824 million yuan / 1.145 billion yuan. The current share price corresponds to a price-to-earnings ratio of 7.4 times 2021 / 5.3 times earnings in 2020. Maintain a neutral rating and a target price of HK $3.20, corresponding to 8.7 times 2020 price-to-earnings ratio and 6.3 times 2021 price-to-earnings ratio, with 18.5% upside from the current share price.
Risk.
The price of raw materials continues to rise, the demand for products is weak, and the epidemic is repeated.