Red Sun (000525) 2018 Annual Report Comments: Restructuring of gross profit margin drags down profits optimistic about long-term performance growth

Red Sun (000525) 2018 Annual Report Comments: Restructuring of gross profit margin drags down profits optimistic about long-term performance growth
Core point of view The company’s revenue grew steadily in 2018, and gross profit margin restructuring dragged down profits.However, we are optimistic that the company will improve the industrial chain through the deployment of new production capacity, and long-term performance growth can be expected.Due to lower product prices in the short term and higher-than-expected increase in raw material costs, we have lowered the company’s 2019/20 net profit return to motherhood to 7.02/8.76 million, cut target price to 24.2 yuan (origin target price of 30 yuan), maintain “Buy” rating. Operating income grew steadily, and gross profit margins dragged 厦门夜网 down profits.The company achieved revenue of 59 in 2018.08 thousand yuan, ten years +16.5%; sales of major products such as paraquat, diquat, and chlorpyrifos have driven sales upward.The company achieved first-class net profit attributable to mother 6.370,000 yuan, at least -10.8%, lower than expected.The company’s profit growth was mainly due to the shrinking supply of upstream raw materials, which led to rising production costs and a decline in gross profit margin.8 pieces to 28.9%. We believe that in the future, under the tightening policy environment of Anhuan, tightening supply and demand is expected to drive product prices upward, and the company’s gross margin improvement can be expected. Layout of multi-product capacity, long-term performance growth can be expected.In 2018, the company 1 candidate biochemical enemy grass fast, 1 involved in biochemical VB3, 2.The production capacity of 5 free radical biochemical phospholipid bases and 3,000 tons of biochemical glufosinate were successfully completed and put into operation. At the end of 2018, the company signed an investment framework agreement for the Chongqing Longevity Production Base Project and plans to invest 16.$ 8 billion to build 2 initial biochemical glufosinate projects.We are optimistic that the company will improve the integrated industrial chain by actively deploying new production capacity and launching new bases.After the above-mentioned production capacity is fully released, the company is expected to realize its production capacity and cost advantages to further increase market share, and long-term performance growth is expected. The acquisition of Chongqing Zhongbang was completed, and the industrial chain was effectively coordinated.In 2018 the company started with 11.8.6 billion yuan completed the acquisition of 100% equity of Chongqing Zhongbang, and the promised acquisition target net profit for 2018-2020 is not less than 64,449 / 8,477 / 11,214 yuan; in 2018, it achieved net profit of 68,200,000 yuan, exceeding the performance commitment.Chongqing Zhongbang’s feasible 2,3-dichlorothiophene and ZPT production capacity form an effective synergy with the company’s existing industry chain.We believe that the company’s market expansion is expected to increase under the background of the dichloro radical leading companies’ limited production and tight supply and demand pattern. Risk factors: intensified competition in the industry; less-than-expected release of production capacity; declining global demand for pesticides. Investment suggestion: As product prices decline in the short term and raw material costs increase more than expected, we lower the company’s 2019/20 net profit return to motherhood to 7.02/8.76 trillion (previous forecast was 11.49/13.560 thousand yuan), the corresponding EPS is 1.21/1.51 yuan; we predict that net profit attributable to mothers will be 10 in 2021.830,000 yuan, corresponding to EPS1.86 yuan.Based on the industry’s average expected level, the company was given 20 times PE in 2019, and the target price was reduced to 24.2 yuan (origin target price of 30 yuan), maintain “Buy” rating.