2013 net loss reached Rmb476mn
Revenue down 16% YoY to Rmb34.7bn; net loss of Rmb476mn was the sum of Rmb125mn operating loss and Rmb351mn write-down of deferred tax assets. Loss per share reached Rmb0.07, below consensus of Rmb0.05/sh net loss, but in line with our estimate.
Positives: In 2013, financial cost was -34% YoY to Rmb241mn; sales volume for MCP/MDCP improved by 47% YoY to 220mn tonnes.
Negatives: FY13 total volume -5% YoY to 16.2mn tonnes, of which Potash -6%, Phosphate -6%, Nitrogen -5%, compound -9%; total revenue decreased 16% YoY to Rmb34.7mn, of which Potash -23%,, Phosphate -15%, Nitrogen -12%, compound -12%; gross profit also dropped drastically, with Potash -54%, Phosphate -62%, and Nitrogen -63% on a YoY basis. SG&A expense as % of total revenue was +0.8ppt YoY; net gearing +3.4ppt YoY to 27.1%; income tax surged by 250% YoY to Rmb343mn.
Trends to watch
Overhang remains: Mgmt. attributes the sluggish fertilizer industry in 2013 to 1) intensified oversupply; 2) transportation cost hikes; 3) higher safety and environmental requirements. The unfavorable trends will make it hard to support a meaningful turnaround in the near term.
Marginal improvement expected for Potash/phosphate/ compounds, while nitrogen is still under large pressure. We believe favorable export tariffs and production cost hikes may help stabilize the market for Potash/phosphate/compound fertilizer. However, the nitrogen market should be under bigger pressure this year. With more competitive capacity coming on stream, selling prices dropped away from purchasing prices in some regions.
Earnings revisions
We cut our 2014/15e EPS forecasts by 5%/5% to Rmb0.07/0.09 respectively.
Valuation and recommendation
We maintain HOLD on Sinofert and cut our TP from HK$1.2 to HK$1.1, implying 10x 2015e P/E.