\u3000\u3 China Vanke Co.Ltd(000002) 545 Qingdao East Steel Tower Stock Co.Ltd(002545) )
The company is the head enterprise of China’s sea potash fertilizer, and 50% of its products feed back to China. At present, the supply and demand situation of the potash fertilizer industry has reversed. We believe that the sustainability of this round of potash fertilizer boom is expected to exceed expectations, and the company’s performance is flexible.
Starting from steel structure, focusing on potash fertilizer business
The company’s traditional main business is iron tower steel structure, and its profit is stable. In 2016, the company acquired Laos Kaiyuan mining and entered the potash business. Kaiyuan mining currently has an in-service capacity of 500000 tons / year, a potash fertilizer capacity of 500000 tons / year under construction, and a total potash fertilizer capacity of 2 million tons / year. The potash fertilizer business will contribute to the main performance in the future.
Inflation boosted the price of potash fertilizer to a ten-year high, and food security increased the demand for potash fertilizer
With high inflation and rising bulk prices, combined with the impact of extreme weather, global grain prices have risen sharply. Since the beginning of 2020, the prices of corn, soybean and wheat have increased by 108%, 76% and 94% respectively. In early April, the FOB price of potassium chloride in Vancouver rose by more than 850 US dollars / ton, and the price of potassium fertilizer reached a new high in recent ten years; Global trade frictions and the impact of the epidemic have made the world’s major economies pay more attention to food security. In 2021, the global demand for potassium fertilizer is 46 million tons (equivalent to K2O), with a year-on-year increase of 4.5%, much higher than the average annual growth rate of 2.8% from 2016 to 2020. We calculate that the demand for potassium fertilizer is expected to increase to 48 million tons in 2022.
Global potash oligopoly, we judge that 2022 will usher in a reversal of the pattern of short supply
In recent years, the global supply-demand relationship of potash fertilizer is relatively loose (nominal capacity of 59 million tons), but the supply pattern is the oligopoly of Canada, Russia and Belarus. US sanctions have blocked the export channel of Belarus potash fertilizer through Lithuania, and the conflict between Russia and Ukraine has further increased the difficulty of exporting about 17 million tons of potash fertilizer from Russia and Belarus. Considering the uncertainty of the export volume of border trade between the two countries and the utilization rate of global potash production capacity, we judge that the global potash fertilizer will face a reversal of the pattern of short supply in 2022, and the business cycle is expected to continue until 2024.
The company has high potassium reserves and good quality, and the production expansion project is promoted as scheduled
The company has 141 square kilometers of potash mines in Gammon and Savannakhet provinces of Laos, which are divided into three mining areas: Longhu, Guangcai and Wentai, of which the first mining of potash resources in Longhu mining area is 220 million tons. The company’s potassium ore tachydrite content is low and rich in bromine resources, which effectively ensures the sustainability of mining area development and reduces the comprehensive cost of mining. The company’s 500000 ton annual potash fertilizer project under construction is planned to be completed by the end of 2022, and the new production capacity is expected to realize its performance in the high business cycle.
Earnings forecast, valuation and rating
We estimate that the company’s revenue in 202224 will be RMB 3.735 billion, RMB 4.743 billion and RMB 5.601 billion respectively, the net profit attributable to the parent company will be RMB 848 million, RMB 1.268 million and RMB 1.636 million respectively, the EPS will be RMB 0.68, RMB 1.02 and RMB 1.32 respectively, and the corresponding PE of the current stock price will be 16.5, 11.0 and 8.5 times. Based on the PE valuation method and FCFF valuation method, we give the company a target price of 16.10 yuan in 2023. In view of the continuous upsurge of the company’s potash boom, the positive and orderly expansion of production and the first coverage, we give the company a “buy” rating.
Risk tips
The international price of potash fertilizer fluctuates sharply; The progress of projects under construction is less than expected; Maritime tension exceeded expectations
