News

Sinofert reported 1H13 net income of Rmb352mn (-35% yoy), accountingfor 42%/41% of GSe/consensus, below historical trend of 61%. Revenue isRmb20,580mn (-9% yoy), accounting for 50%/49% of GSe/consensus, inline with historical trend. Gross margin deteriorated by 1pp, from 6.5% to5.5%.

Analysis

Revenue was down 9% yoy, mainly driven by significant drop in potash(down 19% yoy) on lower ASP (-13% yoy) and sales volume (-7% yoy). Withdomestic potash spot price down 17% yoy, we believe Sinofert benefitedfrom lower price decrease of high-value imported potash, but the weaksales volume indicates market share loss to domestic producers asdomestic production in Jan-Jul was up 25% yoy, while overall inventorywas down slightly yoy.

Nitrogen revenue was down 3% yoy, mainly due to weaker ASP (-7% yoy),partially offset by sales volume growth at 5% yoy.

Compound fertilizer revenue was down 5% yoy. ASP showed a robustmomentum (+26% yoy), attributed to value-added service promotion andmarketing improvement, in our view. However, we also note this comeswith lower sales volume (-24% yoy) at an early stage of the new strategy.

Phosphate revenue was down 9% yoy, with ASP down 29% yoy, offset by28% higher sales volume.

Gross margin was down 1pp, with both distribution and productionsegments’ GMs weaker on sluggish fertilizer demand.

Implications

Maintain Neutral. We place our earnings estimates and 12-m TP underreview, pending further details from the company.

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