德意志银行–QSLI:Huge loss revealed in preliminary 1H18results;cut TP to RMB10.4【公司研究】_研报(yanbao)

【研究报告内容摘要】

Profit warnings: loss at least doubled yoy in 1H18; retain Hold

QSLI announced preliminary 1H18results with net loss of RMB1.05-1.25bn vs.loss of RMB0.52bn in 1H17, widened by 100%-139% yoy. This implies 2Q18loss of RMB0.78-0.98bn vs 1Q18loss of RMB0.27bn. The accelerated loss wasdriven by: 1) slow ramp up on magnesium integration project after productionstarted in late 2017; 2) Haina PVC production suspension in April and accrued lossof RMB0.47bn; 3) chemical integration project impacted by limited natural gassupply and accrued loss of RMB0.33bn. We revise our estimates after accountingfor the higher loss (by 129%) in 2018E but revised up 2019E earnings (by 79%)on higher ASPs due to lower RMB:USD FX. We trim our TP to RMB10.4(9%).

Segmental update: Potash and Lithium +ve

Potash production was roughly flat yoy at 1.93mnton while salesimproved 18.9% yoy to 2.20mnton and ASP up RMB230/ton yoy in 1H18.

Lithium carbonate (Li2CO3) production was 5,329ton (+129% yoy) whilesales volume improved by 78% yoy to 3,950ton. The company saidLanke’s new 20ktpa capacity construction has started while the 30ktpaJV project with BYD is under preparatory work stage.

Magnesium project daily output now is at 50ton which is quite a bit ofdistance away from the target operational level.

Chemical integration project production was significantly impacted bylack of natural gas supply in 1H18. The company has restarted phase 1site in July; the current run-rate for the chemical integration project isat 150%. Conversely, due to the 4.26accident, Haina PVC facility is stilloffline and may not resume in the near term.

Valuation and risk

We revised our TP to RMB10.4based on a DCF (assuming a 6.2% WACC and 2%terminal growth). Our TP implies 1.5x P/B in with 1.5% ROE in 2019E. We seelonger term risks and rewards as balanced at the current valuation, supportedby a potentially ROE accretive debt-to-equity swap plan and long term structuralgrowth of EV batteries. Key downside risks: 1) sluggish chemical prices and softdemand; and 2) unfavorable government policy. Key upside risks: 1) better-thanexpectedpotash prices; and 2) better than expected demand.