Adisseo-Q3 gross profit increased well year-on-year, and liquid methionine sales increased rapidly

Essence Securities publishes investment research report, rating: Overweight.

Adisseo (600299)

Event: Adisseo announced the third quarter of 2019, the first three quarters of the revenue of 8.313 billion yuan , (-2.49% year-on-year), the realization of attributable net profit of 812 million yuan (year-on-year + 14.42%), the realization of non-attributable net profit of 812 million yuan (year-on-year - 2.80%). Among them, 19q3 achieved revenue of 2.955 billion yuan (+6.49% year-on-year, +12.61% month-on-month), net profit attributable to the mother of 278 million yuan (+26.18% year-on-year, +16.86% month-on-month), and net profit of 195 million yuan (-9.79% year-on-year, -1.07% month-on-month). The Company also plans to distribute a cash dividend of RMB1.03 per 10 shares to all shareholders, totaling RMB276 million (both including tax).

Comments: Adisseo q3 gross profit increased year-on-year, we analyzed that it was mainly due to the continuous growth of sales of main products; in addition, the net profit growth contributed a large part of the income from insurance claims, while the year-on-year decline in non-net profit was mainly due to the change in fair value.

19q3 Adisseo achieved a gross profit of 964 million yuan (+12.8% year-on-year, +8.0% month-on-month), which improved year-on-year, reflecting the positive trend of the main business. In terms of price, according to Boya Hexun 19q3 liquid methionine (Shandong) quarterly average price of 14.59 yuan / kg (year-on-year +1.10%, quarter-on-quarter -30.82%), va (500,000 iu / g) for 371 yuan / kg (year-on-year -2%, flat month-on-month), the average sales price of products is relatively stable year-on-year, methionine has declined; in terms of sales, the company's main product liquid methionine in the third quarter achieved double-digit growth (China's sales increased by 21%), Xili selenium, enzyme preparations, Ruminants (the U.S. dairy market is beginning to recover), aquatic products (Europe and Asia-Pacific performance is good), mycotoxin management business mostly achieved 15 to 25% growth; in terms of cost, thanks to the decline in raw material prices (such as 19q3 China propylene price 7423 yuan / ton, year-on-year -13.6%, +4.0% month-on-month) and the improvement of the company's operating efficiency, on the basis of a substantial increase in sales volume, the company's operating costs were effectively controlled (19q3 operating costs were 1.991 billion yuan, +9.2% year-on-year, +9.2% month-on-month). 15.0%), and finally enabled 19q3 to achieve a gross profit margin of 32.62% (-1.57pct., +2.6pct.) month-on-month, maintaining a good level. In addition, the company's 19q3 non-recurring income reached 0.83 billion (+0.79 billion, q-o-q +0.42 billion), mainly from insurance claims; in the net profit deducted from non-attributable to the mother, the net income from the change in fair value was relatively large, with a high impact of -0.17 billion yuan (-0.40 billion yuan and -0.38 billion yuan sequentially), 18q3 was mainly due to changes in euro/dollar hedging, and 19q2 was mainly due to the fair value change income generated by derivative financial instruments. 19q3 is mainly a management incentive plan.

Methionine overcapacity, the price continued to be sluggish; Adisseo achieved rapid sales growth by virtue of liquid egg advantages, cost competitiveness and research and development strength, and new projects were built to drive the company's performance growth. According to feedinfo, the current global methionine annual production capacity of about 1.7 million tons, demand of about 1.3 million tons, the overall situation of oversupply, resulting in 15 years of price continued to decline; in April this year, Novus announced the cancellation of the Texas methionine expansion plan, the same month the Chinese Ministry of Commerce launched a methionine anti-dumping investigation, boosting methionine prices and continues to this day (up about 10%). According to the Japan Chemical Industry Daily, in October Sumitomo Chemical reduced production by tens of thousands of tons to improve production efficiency, and the methionine anti-dumping hearing of the Ministry of Commerce was held as scheduled in the same month; we analyzed the future major overseas competitors of methionine or most of them postponed the expansion plan, and the situation of loose supply and demand is expected to be better than expected. In addition, it is worth noting that thanks to the continuous improvement of domestic liquid methionine penetration rate and broad market prospects, as well as Adisseo's strong cost advantages and technical research and development strength, the company's liquid methionine sales have grown rapidly (domestic growth rate of more than 20%). The company expanded production of 50,000 tons in Europe in 2018, the Nanjing plant completed the debottlenecking transformation, and the construction of the 180,000 tons of new liquid methionine project in Nanjing (planned investment of 490 million US dollars) is progressing smoothly, and it is expected to be put into production in 21 years, and the company is expected to maintain the industry leadership of methionine in the future (according to the announcement, Adisseo's global market share is currently about 27%).

Steadily develop the vitamin A business and accelerate the layout of special product segments. Due to the impact of the Basf accident in June, va prices are relatively strong; according to Feedinfo, it is expected that the BASF plant will resume in November, but the start of construction in 19q4 and 20q1 will remain at a low level, and there will be a suspension of production and expansion plans in 20h2, so the supply of the VA industry may remain tight in the medium term. The company maintains a stable production capacity of 4000 tons / year. In addition, the high value-added specialty products business is the company's second pillar business, due to the continuous expansion and development of the existing product line, the continuous introduction of new products and external mergers and acquisitions, Adisseo has become one of the global leaders in animal nutrition specialty products, and will continue to accelerate its development in the future. On October 9, Adisseo completed an investment in the field of intelligent farming. The investment was made by tibot, a pioneer in robotics focused on poultry farming, which develops robotic solutions for poultry farmers to increase their income, improve working conditions on farms and improve animal health.

It is proposed to hold 100% of Adisseo Nutrition Group to optimize the company's financial structure.

In October, the company announced that it intends to acquire the remaining 15% equity of its subsidiary Adisseo Nutrition Group (the 85% of the equity already held was injected during the asset restructuring in 2015) from Bluestar Group to achieve 100% control. The estimated equity valuation of the underlying assets is 3.086 billion yuan, which is equivalent to the acquisition price-earnings ratio of 17.9 times based on the net profit of 1.149 billion yuan deducted in 2018, and if the acquisition is completed, the net profit attributable to the parent of the listed company in 2019q1~q3 can be increased by 19.8%. The acquisition will be paid in cash, with the first tranche consideration of $1.543 billion paid from Adisseo's own funds and the second phase of consideration being $1.543 billion or additional funds through financing. According to the announcement, at the end of 19q3, the balance of Adisseo's monetary funds was 5.2 billion yuan (including 2 billion yuan of daily operating capital requirements), the asset-liability ratio was 19.4%, the fund balance met the needs of the first phase of payment, and the financing under the low asset-liability ratio was not worried. In addition to increasing the earnings per share of the listed company, the acquisition will further enhance the control of the listed company over Adisseo Nutrition Group, which is conducive to improving and simplifying the corporate governance structure, helping to improve the company's management decision-making and management efficiency, helping to develop and enhance the competitiveness of the company's core business, and fully realizing the most effective allocation of the company's resources.

Shareholder Bluestar Group intends to issue Andisseo exchangeable bonds.

On October 16, Bluestar Group, a shareholder of Adisseo, issued its holdings of Adisseo's exchangeable corporate bonds, totaling no more than RMB4.5 billion, with an initial transfer price of RMB11.56 per share and a conversion period from October 21, 2020 to October 18, 2024. According to the calculation of the issuance of 4.5 billion yuan, after the total conversion of shares, there will be 389 million shares of Adisseo, accounting for 14.5% of the total share capital, that is, the shareholding ratio of Bluestar Group in Adisseo will decrease from 89.1% to 74.6%, and the controlling position will remain unchanged. After deducting the issuance fee from the issuance of exchangeable bonds, Bluestar Group will be used to repay interest-bearing liabilities.

Investment advice: overweight -a investment rating, we expect the company's net profit attributable to the parent from 2019 to 2021 to be 1.147 billion yuan, 1.214 billion yuan and 1.350 billion yuan respectively, corresponding to the closing price of 10.68 yuan / share on October 24, 2019, which is equivalent to the forecast price-earnings ratio of 25.0, 23.6 and 21.2 times, respectively.

Risk Warning: The risk of sharp fluctuations in the prices of methionine and vitamin A products, the risk of fierce competition in the industry, the risk of a sharp rise in raw material prices, and the risk that new business expansion is less than expected

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