Adisseo – Revenue and net profit achieved double growth, and liquid methionine highlighted its competitive advantage

Cinda Securities publishes investment research report with rating: Overweight.

Adisseo (600299)

Event: The company released three quarterly reports. In the first three quarters of 2019, the company achieved operating income of 8.31 billion yuan, down 2.49% year-on-year, and net profit attributable to the mother of 812 million yuan, an increase of 14.42% year-on-year, equivalent to basic earnings per share of 0.30 yuan / share, an increase of 15% year-on-year.

Comments:

In the third quarter, the operation continued to improve, and the revenue and net profit achieved double growth! In the third quarter of 2019, the company's operating conditions improved significantly. In the single quarter of the third quarter of 2019, the company achieved operating income of 2.956 billion yuan, an increase of 6.48% year-on-year, an increase of 13% month-on-month, and the company achieved a net profit attributable to the mother of 278 million yuan, an increase of 26.18% year-on-year and 16.9% month-on-month. The company's revenue and attributable net profit increased significantly year-on-year and quarter-on-quarter! The company continued to consolidate the trend of year-on-year increase in net profit and business improvement in the second quarter, and achieved a year-on-year increase in revenue and net profit in the third quarter of 2019!

Liquid methionine continues to grow by more than 20%, and vitamin A resumes growth! In the company's main business, affected by the high price of vitamin A and methionine in the same period of 2018, in the first half of 2019, the operation of the company's main business functional products (methionine + vitamin A) was affected to a certain extent, and the gross profit margin was in a continuous decline process since the fourth quarter of 2018, from 32.6% in the fourth quarter of 2018 to 29.2% in the second quarter of 2019, but in the third quarter, the gross profit margin of functional products recovered to 30.2%! The improvement of the company's functional products mainly comes from two aspects, on the one hand, liquid methionine sales continue to grow, in the third quarter of 2019, the company's liquid methionine sales in the Chinese market increased by 21% year-on-year, maintaining a growth rate of more than 20% for two consecutive quarters. In addition, the company's vitamin A sales returned to normal, in the case of vitamin A prices remained relatively high, the company's operating conditions have improved significantly, the company expects that the vitamin A business in the 4th quarter will continue to have an important contribution to the company's business growth!

The construction of the liquid methionine project is smooth and the performance elasticity is huge. In the face of the threat of new entrants, methionine prices depend on the marginal cost of the industry, i.e. the variable cost of new entrants in the country. Recently, Tsinghua Unigroup submitted an application for methionine anti-dumping investigation to the Ministry of Commerce, which explains that the current methionine price is at the absolute bottom, and if the anti-dumping investigation is finally established, it will support the domestic methionine market price, which is conducive to the sales and profitability of methionine products of companies that have already laid out production capacity in China. At present, the company's 170,000 tons of liquid methionine plant in the first phase of the Nanjing project is running smoothly and has a high operating rate, which has become one of the lowest cost devices in the industry. The company's second phase of the 180,000 tons of liquid methionine project is still continuing to proceed smoothly, with the nanjing two phase of methionine project put into production, the company's domestic liquid methionine demand continues to improve and the company's new production equipment production cost is much lower than the industry, the performance has been continuously improved!

Increase the intensity of dividends, and the proportion of dividends accounted for more than 70% of the net profit of the previous year. According to the announcement of the resolution of the eighth meeting of the seventh board of directors of the company in 2019, the company intends to distribute a cash dividend of RMB1.03 (including tax) to all shareholders for every 10 shares, for a total of 276 million yuan. Taking into account the Company's dividend of RMB1.73 per 10 shares in June 2019, the Company expects to pay a dividend of RMB2.76 per 10 shares to shareholders in 2019, representing a dividend yield of approximately 2.6%. The company's total dividend amount in 2019 reached 740 million yuan, accounting for 79.9% of the company's net profit attributable to the mother in 2018!

It is proposed to acquire minority shareholders' interests and optimize the organizational structure. In order to optimize the shareholding structure, Adisseo and its parent company Bluestar Group entered into an equity acquisition agreement to acquire 15% of the common shares of Bluestar Adisseo Nutrition Group Limited ("bang") held by Bluestar Group. According to the Company's announcement on October 24, 2019, the estimated valuation of the equity interest in the subject of the transaction is RMB3.086 billion, which is lower than the valuation of the previously announced transaction plan. The new deal solution allows Adisseo to obtain more relaxed and flexible payment conditions. The transaction plan will be submitted to shareholders for voting. Upon completion of the transaction, Adisseo will eventually wholly own Bang.

Profit Forecast and Rating: We expect the company's operating income to reach 12.88 billion yuan, 15.24 billion yuan and 17.91 billion yuan respectively from 2019 to 2021, an increase of 12.79%, 18.35% and 17.5% year-on-year, and the net profit attributable to the mother to reach 1.046 billion yuan, 1.38 billion yuan and 1.72 billion yuan, respectively, an increase of 12.95%, 31.94% and 24.98% year-on-year, and the diluted EPS based on current shares reached 0.39 yuan, respectively. 0.51 yuan and 0.64 yuan, corresponding to the closing price on October 24, 2019 (10.68 yuan / share) of the dynamic PE of 27 times, 21 times and 17 times, respectively, maintaining the "overweight" rating.

Risk factors: the demand for methionine in the aquaculture industry or the outbreak of poultry epidemic is less than expected; the insufficient supply of va raw materials affects the company's va performance; the market development of new products of methionine and enzyme preparations is less than expected; and the rebound in methionine prices is less than expected.

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