与预测不一致的方面 湖北宜化公布2011年净利润人民币8.18亿元(同比增长43%),较我们的预测和万得市场预测低12%。业绩低于预期的主要原因是由于来自公司持股51%的鄂尔多斯尿素厂的盈利贡献较高,高于预期的少数股东损益抵消了超出预期的DAP和PVC产量推动收入高于预期(较预测高12%)的影响。尽管总体毛利率符合我们的预期,但PVC利润率较我们的预测低3个百分点,该影响被非核心业务毛利率较高所抵消。此外,湖北宜化拟每股派息人民币0.05元,每10股送红股5股。 投资影响 我们将2012/13/14年每股盈利预测微调了-2%/1%/1%,以计入收入高于预期被少数股东损益高于预期所抵消的影响。我们维持基于市净率的12个月目标价格人民币25.30元不变。该股当前股价对应的2012年预期市盈率为13倍,低于A股化肥同业18倍-46倍的水平。维持买入。主要风险:PVC需求弱于预期,磷矿石、天然气和煤炭成本大幅上涨。

估值 我们预计,在拉丁美洲(农作物种植面积增长)和亚洲(高风险/高残留农药继续被更新换代)农药需求上升的推动下,长青股份2013年年底前销量和收入的年均复合增长率均将高达26%。我们的12个月目标价格人民币19.50元基于2.3倍的2012年预期市净率和9%的2012-2013年预期净资产回报率均值计算得出,对应29.7倍的2012年预期市盈率,较历史均值低约1个标准差。

Source of opportunity We visited Yangnong last week and came away still feeling positive about thegrowth prospects for its pyrethroid insecticides and dicamba herbicides in 2012. However, poor glyphosate profitability, in our view, would still be a near-termdrag on earnings. Two new developments that could drive Yangnong’s growththrough 2015are: (1) US EPA recently released a report supporting pyrethroid aslow risk, which should trigger market share gains and rising demand forpyrethroids; and (2) Yangnong is expanding into new materials – SP andbiodegradable PBS plastics, which present robust growth potential. Valuationsare compelling at just 5X EV/EBITDA. Reiterate Buy (on Conviction List). Catalyst Key catalysts are: (1) to obtain approval from environmental bureau for newmaterial projects; (2) the announcement of new environmental standards fororganophosphate pesticides, which should accelerate the pace of glyphosateindustry consolidation; and (3) a pickup in glyphosate monthly sales, suggestinga drawdown in inventories. Valuation We lower our 2011E/2012E/2013E EPS estimates by 8%/2%/5% largely to reflectour lower glyphosate margin assumptions of 3%/3%/9% (previous: 5%/5%/12%). Consequently, we lower our 12-month target price to Rmb25.70, based on 2.3X2012E P/B vs. 10% average 2012E-2013E ROE (previous: Rmb26.40, 2012E 2.4Xvs. 11% average 2012E-2013E ROE). Despite our earnings revisions,Yangnong’s valuation remains attractive at just 5X 12E EV/EBITDA. Acrossvarious metrics, Yangnong is trading close to recent-year lows, which webelieve is unjustified given Yangnong’s high earnings visibility from itspyrethroid insecticide business (stable and resilient demand, and relativelydefensive to economic cycles). Key risks Key risks include adverse weather and intense glyphosate price competition.

We reiterate our Buy rating on Hubei Yihua (HBYH), and raise ourestimates and price target on its announced expansion of phosphatecapacity by 560kmt (+80%), which will transform the company into China’s4th largest phosphate fertilizer producer in China (current: 6th). HBYH alsoreported 9M11 earnings ahead of our expectations, partly driven by fasterthan-expected ramp at its new Qinghai PVC plant, which marks anotherexecution milestone in HBYH’s multi-pronged growth strategy. Buy HBYHfor 39% potential upside and exposure to one of China’s largest and lowestcost urea, phosphate and PVC producers.

We remove Qinghai Salt Lake Industry (QSLI) from our Conviction List dueto an absence of potash price hikes. Despite this, we maintain our Buyrating on QSLI shares since we remain positive on the long-term outlookfor China’s potash price. We expect tight global potash supply-demandfrom 2012 and China should remain c.30% import-reliant through 2015. Since adding QSLI to the Conviction List on July 12 2011, it fell 10.1% vs. -3.7% for the Shenzhen A Index. Over the last 12 months, QSLI down 4.4%vs. the Shenzhen A Index down 0.9%.

Lianhua reported 1H11 net profit of Rmb129mn (+50% yoy), in line withour expectations and Wind consensus, accounting for 42% of our prior2011E full-year estimate and 44% of consensus. Revenue rose 33%, led bya 46% yoy increase in pesticides intermediates sales, and 17%-18% yoyincrease in pharmaceutical intermediates and trading revenue. Someupside surprises: (1) SG&A expenses were slightly lower-than-expected,probably due to less R&D expenditure, and (2) 1H11 effective tax rate was15% vs. our prior assumption of 21%, because Lianhua assumed that itwould be able to renew its expired High-Tech Enterprise status by the endof 2011, which would entitle it to a preferential 15% tax rate. The companyalso announced 9M2011 guidance, expecting net profit to increase by 40%-60% yoy to Rmb192-219mn, in line with our expectations. Lianhua alsoproposed a reserve capitalization of 5 shares for every 10 shares. What to do with the stock。 We raise our net income forecasts to reflect lower SG&A and taxexpenses, but adjust our ‘11E/12E/13E EPS by -3%/-2%/+4% and targetprice to reflect the recently completed private share placement. Our new12m TP is Rmb49.50, based on 7.4X 2011E P/B against 24% average 11E-12E ROE (previous: Rmb45.70, 10.4X vs. 34%). Maintain Buy and we are8%/16% above ‘11/12 Wind consensus earnings estimates. Key risks areweaker-than-expected export demand and adverse weather conditions.

On June 10, Qinghai Salt Lake Industry (QSLI) announced that it hasentered into a Memorandum of Understanding (MOU) with ZhongchuanMining to jointly develop a 3mn mt potash production base inSaskatchewan, Canada. According to the announcement, (1) the estimatedtotal investment is US$3.2bn, of which US$2.0-2.5bn will be funded by theChinese government; (2) both parties do not have the solution miningtechnology required at the site and will be importing the technology; and(3) the launch of the project is still dependant on further approvals from theSaskatchewan government. Analysis。 The Saskatchewan government granted Zhongchuan Mining explorationrights on the 96km2 site (KP-488) southeast of the city of Saskatoon in 2010. According to Zhongchuan Mining’s company website, probable mineralreserves are around 903mn mt recoverable ore, with an average K2O gradeof 28%-38%, higher than Potash Corp’s average grade of 22%-26% (basedon in-mine samples listed in its 2010 annual report). Zhongchuan Mining also acquired a neighboring potash mine site (KP-385,not included in the MOU) in Oct, 2010. If combined with KP-488, the entireexploration site would expand to about 450km2 with a probable mineralreserve of more than 2bn mt and annual production capacity of 5-10mn mt. Implications。 In our view QSLI’s overseas venture is a positive long-term strategic move. By2013 QSLI aims to expand its domestic potash capacity by 50% to 3.2-3.5mnmt, the maximum optimal capacity for its mining site. However, to furtherdrive volume growth in potash, QSLI has had to seek overseas resources, andwe believe the MOU with Zhongchuan Mining is a good start, albeit stillpreliminary. We reiterate our Buy rating and maintain our estimates and 12mP/B-based price target of Rmb69.50 (based on 7X 11E P/B vs. a 32% average11E-12E ROE). Key risks are delays in expansion projects, government pricecontrols and adverse weather.

Catalyst. With firm corn prices on tight supply-demand in 2H11, we expect investors tosee through 2011E and focus on a strong 2012E-13E earnings growth, drivenby increasing sales volumes from new super high-yield seed varieties. Valuation. We adjust 2011E/12E/13E EPS estimates by -25%/+1%/-4% to account forlower seed sales volumes and 1H11 profit warning, and lower our 12mprice target to Rmb65.30, based on 10.5X 2011E P/B vs 24% average2011E-12E ROE (previous: Rmb78.80, 13.6X vs 30%), a lower multiplereflecting lower returns. We believe the market has overreacted to the1H11 profit warning. If we add 4Q10 (earnings beat) and 1Q11 (earningsmiss) together, earnings were in line with expectations. Key risks. Key risks are the adverse weather and negative publicity from the continueddebate that Pioneer seeds may be genetically modified. If demand for Pioneerseeds are adversely affected, we believe Denghai’s growing portfolio of selfdevelopedSuper high-yield seed varieties should help the company mitigatethe potential impact better than domestic Pioneer seed competitor DunhuangSeed (600354.SS) which has limited in-house R&D.

Yangnong reported 1Q11 net profit of Rmb37mn (-17% yoy), accountingfor 22% of our FY11E forecasts but just 13% of Wind consensus. Revenueof Rmb502mn (flat yoy) was slightly ahead of our expectations (28% ofFY11E), but was offset by asset impairment costs and investment losses. We believe the earnings miss vs. consensus is mainly due to overlyoptimistic ASP assumptions by consensus. While average pesticide priceshave risen ytd, we continue to expect a flattish price outlook forglyphosate herbicides due to ongoing severe overcapacity in China. What to do with the stock。 We keep our estimates and 12-month P/B-based target price of Rmb32.60unchanged. We are Buy-rated on Yangnong and it continues to be ourrelative pick within our pesticides coverage. We believe Yangnong benefitsmore than peers when demand for pesticides is strong given its superiorpyrethroid insecticide products, and is less negatively affected whendemand is weak given its more diversified and defensive earnings profile. Key risks are adverse weather and excessive price competition forglyphosate herbicides.

What surprised us. Qinghai Salt Lake Potash (QSLP) reported 1Q11 net profit of Rmb753 mn (-11% yoy against restated 1Q10 net profit assuming the merger with parentQinghai Industry Group was completed in 1Q10), accounting for 21% ofour FY11 estimates and 24% of Wind consensus. Key variance was lowerthan-expected non operating income (5% of revenue vs. typical 9%-12%),which we suspect was due to a delay in receiving VAT rebates for potashfertilizer sales in 4Q10. Stripping out the effect from the VAT rebates,QSLP’s 1Q11 earnings are in line with our expectations. Revenue declined12% yoy, mainly due to a higher base in 1Q10 (exceptionally high salesvolumes), partly offset by an estimated 11% yoy increase in QSLP’s ASP. We expect potash prices to increase further in coming quarters on the backof continued tightness in global potash supply (North American potashinventory in March is 26% below previous 5-year average) and ourexpectations of higher import prices for China in 2H11. What to do with the stock. We keep our estimates and P/B-based 12m TP of Rmb65.20 unchanged. We maintain our Buy rating. Key risks are adverse global weather andlower-than-expected potash prices.

Hubei Yihua (HBYH) reported 2010 net profit of Rmb573mn (+141% yoy),7% below our estimate and 5% above Wind consensus. Revenue (+32%yoy) was 7% above our expectations and 22% above Wind consensus,likely due to strong performance across the board vs. Street expectations:PVC (new capacity), urea (higher ASPs in 4Q2010) and DAP (record grossmargins). The overall gross margin improved 6pp yoy to 22% (urea +3pp,DAP +11pp, PVC +3pp), consistent with our view that HBYH continues toenjoy cost leadership and margin expansion due to its increasinglyvertically integrated business model. HBYH also proposed a final dividendof Rmb0.10/share. What to do with the stock。 While we are constructive on PVC and oil prices, PVC prices ytd have beenweaker than we expected, trending below our full-year ASP forecasts. Welower our 2011E/2012E/2013E EPS by 9%/17%/2% to reflect lower-thanexpectedPVC ASPs ytd, higher interest expenses from a higher-thanexpecteddebt balance and higher income tax rates for the PVC plants. Welower our 12m TP to Rmb25.40 (from Rmb26.70), based on 3.0X 2011EP/B against 18% average 2011E-12E ROE (from 3.1X 2011E P/B against18.6% average 2011E-12E ROE), a lower P/B multiple reflecting lowerreturns. Driven by high crop prices, we expect fertilizer demand in China toimprove yoy in 2011E, and tight fertilizer inventories to continue to supportDAP prices at elevated levels. Maintain Buy (on Conviction List). Keyrisks: adverse weather and lower-than-expected PVC prices.

联化科技公布的2010年净利润为人民币2.03亿元(同比增长57%),符合我们的预期,但较万得市场预测高8%。收入略高于我们的预测(同比增长47%),主要是受到医药中间体同比增长64%和贸易收入同比大幅增长133%的推动。海外工业销售同比增长24%,抵消了内需疲软的影响。由于销售结构转向低利润率的贸易业务,毛利率下滑4个百分点至26%,低于我们32%的预测。有效税率低于预期,因为江苏联化被认定为高新技术企业,自2010年至2012年按15%的较低税率纳税。联化科技拟派发人民币0.20元/股的年终股息。 投资影响. 我们将2011/2012年每股盈利预测小幅下调了1%/4%以反映毛利率低于预期但税率更优惠的因素,我们还引入了2013年每股盈利预测,为人民币2.09元。我们维持基于市净率的人民币45.70元的12个月目标价格不变,并重申对联化科技的买入评级。主要的风险包括出口需求弱于预期,恶劣的天气和农药需求弱于预期。