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Stanley Fertilizer:Agricultural Service Business Steadily Underway

发布时间:2016-04-12    研究机构:兴业证券

Stanley Fertilizer (002588: SZ) recently released its 2015 financial report, the company madeCNY 7.04 billion in operating revenue, up 24.5% YoY. The operating profit was CNY 698 million,up 23.2% YoY. The net profit attributable to the parent company was CNY 620 million, up25.23% YoY. The net profit after deducting non-recurring items came in at CNY 572 million, up18.9% YoY. Calculated with stock capital of 583 million shares, the diluted EPS was CNY 1.06.

The EPS after deducting non-recurring items was CNY 0.98. The operating cash flow per sharewas CNY 0.27. In 15Q4, the company made CNY 860 million operating revenue, down 42.61%YoY. The net profit attributable to the parent company was CNY 80.12 million, down 2.32% YoY.

The EPS for 15Q4 was CNY 0.14. The company forecast its net profit attributable to the parentcompany for 16Q1 at CNY 147.1-159.9 million, up 15-25% YoY.

In addition, the company released its 2015 profit distribution scheme, stating that it plans topay cash dividend of CNY 2 every 10 shares (before tax) to all shareholders. It will also issueten capitalization stocks for every ten shares.

Stanley Fertilizer’s 2015 annual financial results meet our expectations; it’s also in line withwhat is stated in the previously-issued preliminary earnings estimate. During the reportingperiod, sales of the company’s compound fertilizer grew steadily, thus pushing up the YoYincrease in earnings.

Sales of compound fertilizer continued increasing, pushing the company earnings up YoY. In2015, Stanley Fertilizer accelerated construction of its production businesses. It also steppedup efforts on product marketing and brand building. Over the year of 2015, sales of thecompany’s compound fertilizer reached 2.43 million metric tons, up 18.86% YoY. The averageproduct price rose along with increases in element fertilizer prices, which pushed up thecompany’s size. Over the reporting period, the company’s gross profit margin rose by 0.98percentage points YoY. With improvement on product mix, the fertilizer production businesssaw its gross profit margin increase by 1.04 percentage points. Due to the rise of stockincentive fees, increase in R&D expense and reduction in interest income, the company’scost/income ratio went up 0.94 percentage points YoY. In addition, the company incurred assetimpairment loss of CNY 28.72 million. Investment income rose CNY 17.34 million, which waslargely attributed to the increase in WMP return. The non-operating profit rose CNY 39.09million with the receipt of government subsidy.

Due to the reimposition of value-added tax, the account receivables increased from a yearearlier. The net operating cash flow dropped. Since September 1, 2015, the Chinese taxregulator resumed the imposition of value-added tax on federalizers. Given such, the company allowed its high-quality clients to credit purchase fertilizers and some of the payments werereceived in 15Q4 or will be received in 2016. As of the end of 2015, the company recordedCNY 406 million account receivables on its balance sheet, a YoY increase of CNY 397 million(down CNY 275 million from the third quarter. The inventory increased CNY 233 million YoY.

The operating cash flow was CNY 159 million, down 77.55% YoY.

The 15Q4 sales dropped remarkably. The net profit went down slightly. Also affected by theimposition of value-added tax on fertilizer, the downstream distributors purchased and storedlarge amounts of fertilizers in 15Q3, when the sales of compound fertilizer experiencedexplosive growth. The company collected large amounts of account receivables in the fourthquarter. The 15Q4 sales dropped sharply. The company’s operating revenue fell 42.61% in15Q4, with the gross margin up 1.29 percentage points to 19.07%. The cost-income ratio for15Q4 increased 5.27 percentage points to 17.45%, primarily because the administrationexpense ratio increased 9.12 percentage points following the rise of stock incentive fees). Atthe same time, the asset impairment loss reduced by 10.3 million. The investment income roseCNY 3.66 million. In addition, with increases in government subsidy, the company’snon-operating income went up by CNY 32.42 million. The 15Q4 profit dropped slightly.

The industry chain service platform is under construction, suggesting wider business scope.

In 2015, the company set up a new subsidiary, Stanley Agricultural Service Co., Ltd., andoperates 16 agricultural JVs in Chinas’ northeast, Neimenggu, north and southeast, with over50,000 mu of land transferred and 300,000 mu of land serviced. It is capable of drying 550,000metric tons of grains each year and storing 500,000 metric tons of grains. The agriculturalservice company is engaged in providing on-stop solution regarding agricultural materials,agricultural machines, grain collection and storage as well as agricultural finance. After oneyear of pilot, the company has primarily developed a service model based on finance. StanleyFertilizer has formed partnership with Hailir Pesticides and Chemicals Group to improvepesticides business. The company has ramped up efforts on building new warehouses. It hasalso signed grain purchase and sales agreement with a number of companies including YihaiKerry (Yunzhou) and Ruixing Corporation, in a move to expand grain sales channels, to improvethe current agricultural service industry chain and to construct an integrated agriculturalplantation service platform. In 2015, Stanley Agricultural Service Co., Ltd. has primarily realizedprofitability, paving way for the continued expansion of service scale.

Reiterate BUY. As China’s leading compound fertilizer producer, Stanley Fertilizer is nowsupplying products across the country. It is working hard to improve its product mix to spurfaster sales growth. At present, the company is actively transforming itself towards anagricultural service provider. We show strong optimism towards the company’s growthprospects as it has formed a relatively mature business model and is actively pushing forwardresource integration. We maintain our EPS forecast for the company at CNY 1.30 in 2016, CNY1.63 in 2017 and CNY 1.97 in 2018. Reiterate BUY.

Potential Risk: Sharp volatility of element fertilizer prices, slower-than-expected expansion ofagricultural service businesses.

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