On a recovery track
2012 NPAT was up 29% YoY to Rmb878mn (EPS of Rmb0.13), with earnings from Sinofert Yunlong higher than our expectation. ROE reached 6.4% in 2012 (vs. 5.2% in 2011). Adjusted NPAT (including self-owned distribution business and income from QH Salt Lake, bu t before derivative revaluation in 1H11) was up 20% YoY. Excluding QHSL’s contribution, recurring NPAT was up 21% YoY. Proposed dividend higher to Rmb0.0187/sh (vs. Rmb0.0135/sh in 2011), with payout ratio stable at 15%.
Positives: Total sales volume was up 4.1% YoY to 17.1mn tonnes,among which: phosphate up 17%, nitrogen up 2%, and potash up1%; Total revenue was up 12% YoY to Rmb41.2bn, among which:phosphate up 26%, nitrogen up 13.7%, potash up 6.2%; Sinofer tYunlong realized full capacity for MCP/DMCP in 2012, contributingrecord high sales volume and revenue. Group gross margin reachedRmb2.38bn, up 13.8% YoY; Other expenses including inventoryimpairment and exchange losses were down 35% YoY.
Negatives: Sales volume of compound fertilizers was down 10%,and revenue down 3.3% YoY; Selling expenses were up 12.5% YoY;Administrative expenses and financial expenses were up 15.4% and7.3% YoY, respectively.
Valuation and recommendation
We expect stable fertilizers prices, a good environment for Sinofertto maintain steady distribution margin for each of its fertilize rproducts. The Group’s capacity e xpansion and operating efficiencygains should improve Sinofert's long-term earnings growth profile.Meanwhile, considering the rising operating rate in Sinofert Yunlongin next few years, the earnings contribution from Yunlong wil lbecome more and more substantial.
We estimate 2013/14e EPS at Rmb0.14/0.17. The stock is trading at areasonable 11x 2013e P/E and 9x 2014e P/E. Maintain HOLD, wit ha new TP at HK$2.10.
Risks
Acquisition and trading risks; uncertainty in negotiations withsuppliers; domestic long-term fertilizer demand weaker thanexpected