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Stanley Agricultural Group:Smooth Growth in Revenue;Improvement in Agricultural Service

发布时间:2016-08-02    研究机构:兴业证券

Company Profile

Stanley Fertilizer Co., Ltd. develops, produces and sells fertilizer products. The company's mainproducts include chlorine-based compound fertilizer, special fertilizer and controlled-releasefertilizer.

Event

Stanley Agricultural Group (002588: SZ) released financial results of 16H1. The operatingrevenue stood at CNY 3.019billion, down 9.50% YoY. The operating profit reached CNY 446million, up 10.89% YoY. The net profit attributable to shareholders of parent company was CNY378million, up 15.46% YoY. Calculated by total share capital of 1.166billion shares, the dilutedEPS was CNY 0.32. (The EPS after deducting non-recurring items was CNY 0.31.) The OCFPSwas CNY 0.16. In the second quarter, the company received operating revenue of CNY 1.608billion, down 5.37% YoY. The net profit attributable to the parent company was CNY 226million, down 13.63% YoY. The EPS for the quarter was CNY 0.19. The company estimate thatthe net profit attributable to the parent company for Jan-September, 2016will range betweenCNY 621million and CNY 675million, up 15%-25%.

Comment

Stanley Agricultural Group has released its 2016interim results, in line with ourexpectations. Sales of compound fertilizers grew steadily, pushing up the earnings YoY.

The sales increased rapidly, thus increasing the earnings. In the first half of 2016, theagricultural product price continued dropping, the prices of elemental fertilizers were on thedecline. China’s compound fertilizer market remained sluggish. Stanley Agricultural Groupstrived to increase sales by improving services. It has been committed to expanding footprinton the market to increase sales. The sales, as a result, grew steadily at 15% in the first half of2016, which became the key driver for earnings.

In view of the data on the financial report, repetitive imposing of value-added taxescontinued to affect revenue and costs. (Value-added taxes need to be deducted from bothoperating revenue and expense, starting from September, 2015). Revenue decreased by 9.50%YoY in 16H1. This was caused by both value-added taxes and dropping prices of fertilizer. Thegross profit and the cost-income ratio increased by 8.75% YoY and 8.77% YoY respectively. Thegrowth of gross profit is generally slower than the sales growth. The company’s gross profit permetric ton decreased somewhat, mainly due to the continued drop in raw material andproduct prices, cancelation of tax break and changes on product mix. In addition, thecompany’s gross profit margin rose by 4.57percentage points YoY, mainly because the grossmargin per metric ton fell at a slower pace than the average product price and the impositionof value-added tax has further pushed down the income. The cost-income ratio increased by2.18percentage points, mainly due to the YoY drop in revenue as a result of increasingcost-income ratio. In addition, the company’s non-operating revenue increase by around CNY10million, exerting positive impact on the company’s earnings growth.

Market rebounded in 16Q2, with QoQ increase in sales. In the compound fertilizer market, asthe inventory was fully consumed and agriculture planting just started, we saw rising amountof purchasing at the downstream. Compound fertilizer in 16Q2grew at a slightly faster pacethan that in 16Q1. The revenue stood at CNY 1.608billion, down 5.37% YoY. (Revenuedecreased by 13.79% YoY in 16Q1due to dropping product price and repetitive imposing ofvalue-added taxes). The net profit reached CNY 226million, up 13.63% YoY. Sales revenue forthe second quarter grew 13.49% QoQ while the net profit increased 49.47% QoQ, showingtrend of rebound. The company’s net profit went up by 14.6%-40.1% YoY, growing with astrong momentum.

Agricultural service progressed smoothly, actively improving the industry chain andoptimizing the business model. The company has established sixteen agricultural jointventures in north-eastern region, Inner Mongolia, northern region and north-western region.The company also acquired two agricultural subsidiaries in Shouguang (Shangdong) andGansu. Affected by dropping grain prices and adjustment on corn purchasing and storagepolicies, the company slowed down the expansion of the agricultural services. The integratedcrop cultivation solutions and the whole-process management have been further streamlinedand optimized. The agricultural service industry chain has been improved, paving way foraccelerated growth in the future. The order-based agricultural service model targetingindividual farmers in central China will be further improved. The company has stepped upefforts on developing agricultural service, which will help broaden the company’s long-termgrowth prospects.

Reiterate BUY. As a leading compound fertilizer producer in China, Stanley Fertilizer Group hasfurther expanded its business across the nation. The company’s product mix has been furtheroptimized. The sales and earnings grow with sound momentum. The company has graduallyimproved the agricultural planting service industry chain through organic growth, M&A andindustrial cooperation. It has explored different planting services models in the north-easternregion and the central region, which will broaden the growth prospects of the company.Calculated with the latest share capital, we made our EPS forecast for the company at CNY0.63in 2016, CNY 0.78in 2017and CNY 0.95in 2018. Reiterate BUY.

Potential Risks: elemental fertilizer price fluctuation, slower-than-expected progress inexpanding agricultural services.

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