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1、21.94,November 20,2012ACTIONBuyHubei Xingfa Chemicals Group Co.(600141.SS),Return Potential:32%,Equity Research,Expansion-led growth against favorable backdrop;initiate at Buy,Source of opportunity,Investment Profile,We initiate on Xingfa Group with a Buy rating and a 12-month target priceof Rmb21.9
2、4,implying 32%potential upside.Xingfa is Chinas leadingintegrated phosphorus chemical firm with large,high-quality phosphaterock(PR)reserves and cheap electricity supply.With capacity likely to,LowGrowthReturns*MultipleVolatility,HighGrowthReturns*MultipleVolatility,increase from 2.95 mn tons to 6 m
3、n tons by 2015 based on our estimates,Percentile,20th,40th,60th,80th,100th,and the company actively developing businesses like ammoniumphosphate(AP),refined phosphoric acid and phosphates to realize thevalue of PR,we see robust growth potential over the next few years with31%profit CAGR over 2012-15
4、.,Hubei Xingfa Chemicals Group Co.(600141.SS)Asia Pacific Chemicals Peer Group Average*Returns=Return on Capital For a complete description of theinvestment profile measures please refer tothe disclosure section of this document.,Catalyst(1)Phosphorus industry sentiment likely to improve in 2013.We
5、seesupport for AP and PR prices in 2013 on elevated crops prices,low APinventory in North America along with 2-year low AP price.(2)Xingfa is,Key dataPrice(Rmb)12 month price target(Rmb)Market cap(Rmb mn/US$mn)Foreign ownership(%),Current16.606,067.0/973.1-,rapidly increasing PR production capacity.
6、The firm has 2.95 mn tons of PR,12/11,12/12E,12/13E,12/14E,capacity,but we expect it to double by 2015.(3)Subsidiary Yidu XingfasAP plant should become profitable in 2013,according to management.ValuationWe estimate 2012/2013/2014 EPS of Rmb0.90/1.18/1.43,implying growth of41%/31%/21%yoy.As with the
7、 other firms in our coverage,we use P/B vs.,EPS(Rmb)EPS growth(%)EPS(diluted)(Rmb)EPS(basic pre-ex)(Rmb)P/E(X)P/B(X)EV/EBITDA(X)Dividend yield(%)ROE(%)CROCI(%),0.6426.80.640.6426.13.215.61.212.912.6,0.9041.30.900.9018.52.89.30.516.014.0,1.1831.31.181.1814.12.37.50.718.114.0,1.4320.91.431.4311.62.06.
8、90.918.513.6,ROE and assign an 18%valuation premium to Xingfa to reflect its 18%P/B,premium over peer companies during the past 12 months.We derive a 12-,Price performance chart,month target price of Rmb21.94 based on 3.1X 2013E P/B and 18%2013EROE.Xingfa is currently trading at 14x 12-m forward P/E
9、,which is at thelow end of its historical valuation range(14x-24x)over the past year.Key risksGreater-than-expected reduction in Indian subsidy for phosphate fertilizer;,242322212019181716,3,0002,9002,8002,7002,6002,5002,4002,3002,200,slower-than-expected expansion of phosphate rock production;weake
10、r-than-expected sales at Yidu Xingfas AP plant.,15Nov-11,Feb-12,May-12,Sep-12,2,100,INVESTMENT LIST MEMBERSHIP,Hubei Xingfa Chemicals Group Co.(L),Shanghai-Shenzhen 300(R),Asia Pacific Buy List,Share price performance(%),3 month,6 month 12 month,AbsoluteRel.to Shanghai-Shenzhen 300,(17.3)(12.0),(22.
11、4)(8.2),(19.8)(3.9),Coverage View:CautiousTao Wei+86(21)2401-8923 Beijing Gao Hua Securities Company LimitedThe Goldman Sachs Group,Inc.,Source:Company data,Goldman Sachs Research estimates,FactSet.Price as of 11/19/2012 close.Goldman Sachs does and seeks to do business with companiescovered in its
12、research reports.As a result,investors should beaware that the firm may have a conflict of interest that couldaffect the objectivity of this report.Investors should considerthis report as only a single factor in making their investmentdecision.For Reg AC certification and other importantdisclosures,
13、see the Disclosure Appendix,or go Analysts employed by non-US affiliates are not registered/qualified as research analystswith FINRA in the U.S.Global Investment Research,2,November 20,2012,Hubei Xingfa Chemicals Group Co.(600141.SS),Hubei Xingfa Chemicals Group Co.:Summary Financials,Profit model(R
14、mb mn)Total revenueCost of goods soldSG&AR&DOther operating profit/(expense)EBITDADepreciation&amortizationEBITInterest incomeInterest expense,12/116,568.5(5,660.0)(401.3)-(4.7)724.7(222.1)502.63.9(186.2),12/12E9,507.4(8,327.7)(430.7)-(42.0)1,217.3(510.3)707.04.2(342.1),12/13E11,419.0(9,871.2)(565.2
15、)-(10.0)1,558.9(586.4)972.613.0(388.3),12/14E12,863.8(11,124.8)(635.5)-(10.0)1,737.0(643.6)1,093.513.2(389.5),Balance sheet(Rmb mn)Cash&equivalentsAccounts receivableInventoryOther current assetsTotal current assetsNet PP&ENet intangiblesTotal investmentsOther long-term assetsTotal assets,12/11424.0
16、476.9562.41.81,465.05,661.9695.6264.5162.08,249.0,12/12E1,295.6911.7821.41.83,030.47,278.9660.0304.5162.011,435.9,12/13E1,322.01,095.0946.61.83,365.38,098.3624.5329.5162.012,579.7,12/14E1,410.81,409.71,219.21.84,041.48,519.5588.9354.5162.013,666.3,Income/(loss)from uncons.subs.,9.7,40.0,25.0,25.0,Ot
17、hersPretax profitsIncome taxMinorities,(23.5)306.5(73.1)(0.9),(11.0)398.2(68.4)(1.3),(8.0)614.2(114.9)(68.0),(6.0)736.1(138.0)(76.9),Accounts payableShort-term debtOther current liabilitiesTotal current liabilities,682.5486.41,625.12,794.0,912.61,786.41,584.94,283.9,1,190.02,186.41,595.14,971.5,1,37
18、1.62,536.41,604.15,512.1,Long-term debt,2,697.7,4,097.7,4,097.7,4,097.7,Net income pre-preferred dividendsPreferred dividendsNet income(pre-exceptionals),232.50.0232.5,328.40.0328.4,431.30.0431.3,521.30.0521.3,Other long-term liabilitiesTotal long-term liabilitiesTotal liabilities,248.12,945.85,739.
19、8,248.14,345.88,629.7,248.14,345.89,317.3,248.14,345.89,857.9,Post-tax exceptionals,0.0,0.0,0.0,0.0,Net income,232.5,328.4,431.3,521.3,Preferred shares,0.0,0.0,0.0,0.0,Total common equity,1,899.2,2,194.8,2,582.9,3,052.1,EPS(basic,pre-except)(Rmb),0.64,0.90,1.18,1.43,Minority interest,610.1,611.4,679
20、.4,756.3,EPS(basic,post-except)(Rmb),0.64,0.90,1.18,1.43,EPS(diluted,post-except)(Rmb),0.64,0.90,1.18,1.43,Total liabilities&equity,8,249.0,11,435.9,12,579.7,13,666.3,DPS(Rmb),0.20,0.09,0.12,0.14,Dividend payout ratio(%),31.4,10.0,10.0,10.0,BVPS(Rmb),5.20,6.01,7.07,8.35,Free cash flow yield(%),(12.0
21、),(26.3),(5.1),(3.2),Growth&margins(%)Sales growthEBITDA growthEBIT growthNet income growthEPS growthGross marginEBITDA marginEBIT margin,12/1140.423.922.726.826.813.811.07.7,12/12E44.768.040.741.341.312.412.87.4,12/13E20.128.137.631.331.313.613.78.5,12/14E12.711.412.420.920.913.513.58.5,RatiosCROCI
22、(%)ROE(%)ROA(%)ROACE(%)Inventory daysReceivables daysPayable daysNet debt/equity(%),12/1112.612.93.27.332.929.437.1110.0,12/12E14.016.03.39.630.326.735.0163.5,12/13E14.018.13.610.332.732.138.9152.1,12/14E13.618.54.010.535.535.542.0137.2,Interest cover-EBIT(X),2.8,2.1,2.6,2.9,Cash flow statement(Rmb
23、mn),12/11,12/12E,12/13E,12/14E,Valuation,12/11,12/12E,12/13E,12/14E,Net income pre-preferred dividends,232.5,328.4,431.3,521.3,D&A add-backMinorities interests add-backNet(inc)/dec working capitalOther operating cash flowCash flow from operations,222.10.9(71.1)172.3556.7,510.31.3(463.6)(40.0)336.4,5
24、86.468.0(31.2)(25.0)1,029.5,643.676.9(405.8)(25.0)811.0,P/E(analyst)(X)P/B(X)EV/EBITDA(X)EV/GCI(X)Dividend yield(%),26.13.215.61.81.2,18.52.89.31.20.5,14.12.37.51.10.7,11.62.06.91.00.9,Capital expendituresAcquisitionsDivestituresOthersCash flow from investmentsDividends paid(common&pref)Inc/(dec)in
25、debtCommon stock issuance(repurchase)Other financing cash flowsCash flow from financing,(1,587.3)(2.1)0.0(16.6)(1,606.0)(36.5)88.0337.6896.01,285.0,(2,091.6)0.00.00.0(2,091.6)(73.1)2,700.00.00.02,626.9,(1,370.3)0.00.00.0(1,370.3)(32.8)400.00.00.0367.2,(1,029.1)0.00.00.0(1,029.1)(43.1)350.00.00.0306.
26、9,Total cash flow,235.6,871.7,26.4,88.8,Note:Last actual year may include reported and estimated data.,Source:Company data,Goldman Sachs Research estimates.Analyst ContributorsTao WGoldman Sachs Global Investment Research,4,5,11,13,19,23,24,3,November 20,2012Table of contentsOverview:Positive indust
27、ry trends;Xingfa positioned for growthAfrica,Middle East to drive phosphorus production growthPhosphate rock:Lagging fertilizers;prices could rise in 2013Chinas phosphate rock:Rising costs benefit high-quality firmsXingfa Group:Leading vertically integrated phosphorus firmEarnings estimates:2012-14
28、net profit growth of 41%/31%/21%Valuation:12-month target price of Rmb21.94;BuyKey risksAppendix of acronymsDisclosure Appendix,Hubei Xingfa Chemicals Group Co.(600141.SS)262728,The prices in this report are based on the close of November 19,2012,unless stated otherwise.The author wishes to thank Ai
29、den Tang for his valuable contribution to this report.Exhibit 1:Comparison of peer companies,Market Cap,CP,12-m,Up/Downside,P/E,TP implied,P/B,TP implied,Company,Ticker,Rating,(USD mn),11/19/12,TP,2012E,2013E,2014E,P/E(13E),2012E,2013E,2014E,P/B(13E),HuitianYTWHYahuaJiulianBeauty starJiangnanBlack c
30、atXingfaKingfaQingxiangNanlingHongbaoliLongxing,300041.SZ600309.SS002497.SZ002037.SZ002243.SZ002226.SZ002068.SZ600141.SS600143.SS002408.SZ002096.SZ002165.SZ002442.SZ,BuyBuy*BuyBuyBuyNeutralNeutralBuyNeutralNeutralNeutralNeutralSell,1954,5086796542757214619662,0321,021455432240,11.6113.058.720.326.64
31、11.496.0316.64.813.92115.094.69,17.619.0212.3727.65915.477.9921.946.1317.76145.14.43,52%46%42%36%36%35%33%32%28%28%27%0%-6%,15.1X12.0X17.9X20.2X21.7X17.7X17.4X18.5X15.0X19.7X25.6X27.7X44.3X,13.0X9.8X14.6X15.2X14.2X15.5X12.7X14.1X12.7X12.9X21.6X21.4X24.6X,10.6X8.4X12.5X12.7X11.5X13.3X10.7X11.6X10.6X1
32、0.1X19.8X16.3X19.2X,19.7X14.3X20.8X20.7X19.2X20.9X16.8X18.6X16.2X16.4X27.5X21.5X23.2X,1.3X3.4X2.1X2.6X2.2X1.9X2.2X2.8X1.6X2.4X4.6X2.8X1.9X,1.2X2.7X1.9X2.3X2.0X1.7X1.9X2.3X1.5X2.1X3.9X2.5X1.8X,1.1X2.1X1.7X1.9X1.7X1.5X1.6X2.0X1.4X1.8X3.3X2.2X1.7X,1.9X3.9X2.7X3.1X2.7X2.3X2.5X3.1X1.9X2.7X5.0X2.5X1.7X,*D
33、enotes stock is on our regional Conviction List.Source:Company data,Wind,Gao Hua Securities Research estimates.Goldman Sachs Global Investment Research,4,November 20,2012,Hubei Xingfa Chemicals Group Co.(600141.SS),Overview:Positive industry trends;Xingfa positioned for growthWe initiate on Xingfa G
34、roup with a Buy rating and a 12 month target price of Rmb21.94.Xingfa is Chinas leading vertically integrated phosphorus firm.High quality phosphorusreserves and inexpensive hydropower provides Xingfa its competitive advantage,positioning it as one of the top phosphorus companies in China.The compan
35、ysphosphate rock mine output is likely to double over the next three years to match growthin Xingfas downstream ammonium phosphate and wet process phosphoric acidbusinesses,which should drive solid earnings growth.We estimate 2012E/2013E/2014EEPS of Rmb0.90/1.18/1.43,implying growth of 41%/31%/21%yo
36、y.Attractive industry dynamicsAfrica and the Middle East are likely to take Chinas role in leadingdevelopment of the global phosphorus industry.China has been the leading forcebehind the development of the global phosphorus industry in the past decade.But growth in the domestic industry has slowed d
37、ue to greater emphasis onresource conservation and slowing demand growth.Africa and the Middle Eastpossess the largest reserves of phosphorus worldwide and we expect them todrive global growth and be the main source of supply for international markets.Incremental production capacity growth for phosp
38、hate rock and ammoniumphosphate should be limited before 2014,but beginning 2014,Africa and theMiddle East are likely to accelerate the release of new capacity.Supply/demand dynamics pointing to global price recovery-We expect threefactors to drive international phosphate fertilizer and phosphate ro
39、ck pricesrecovery in 2013.First,the severe drought in the US last summer raised prices forfarm products,which should drive strong demand for phosphate fertilizer duringthe 2013 planting season.Second,US inventories of phosphate fertilizer arecurrently 15%below their 5-year average and are also below
40、 2011 levels duringthe same period.Further,Indias steep reduction in phosphate fertilizer imports in2012 resulted in a 2-year low fertilizer price,even as prices for farm productsclimbed.Finally,in 2013 we expect limited release of new phosphate rock andphosphate fertilizer capacity.As such,we expec
41、t the supply/demand dynamics toimprove in 2013.Room for price rise in China-Due to official restrictions,Chinas phosphate rockexports are limited and the market is self-contained.However,phosphatefertilizer exports are over 20%of total production,and prices are closelycorrelated with international p
42、hosphate fertilizer prices.We expect the globalphosphorus market recovery to enter China through the phosphate fertilizermarket,and boost the phosphate rock market as well.We see room for a furthersmall increase in phosphate rock prices in 2013.Xingfa positioned for growthSolid reserves,capacity to
43、double by 2015-Xingfa has phosphate rockresources totaling 180 mn tons,and its ore is of a higher grade than the nationalaverage.The company has two mining blocks still in the exploration phase:initialreserves are over 100 mn tons,and could exceed 300 mn tons over the next twoyears.The Yichang regio
44、n of Hubei province has rich phosphorus resources.Leveraging on its leading position in Yichang,Xingfa could acquire even moremines in the future.Xingfa currently has phosphate rock capacity of 2.95 mn tons,Goldman Sachs Global Investment Research,5,November 20,2012,Hubei Xingfa Chemicals Group Co.(
45、600141.SS),and according to its expansion plan,attributable capacity will double by 2015 to 6mn tons.We estimate Xingfas 2013 phosphate rock sales will grow 800k-1 mntons,an increase of over 25%.Attractive cost structure-The firm has 18 small hydropower stations with atotal capacity of 140k kW,and y
46、early power generation of 450 mn kWh at a costof Rmb0.3/kWh;this is significantly below external prices of Rmb0.6-0.7/kWh,generating yearly cost savings of over Rmb135 mn annually.A self-sufficientphosphorus supply and cheap hydropower ensure the firms phosphate productsmaintain a cost advantage,ena
47、bling the firm to achieve relatively strong earningseven in a down phosphate market.Xingfa is developing its phosphate fertilizerand fine phosphate products to realize the value of its phosphate rock;600k tonsof ammonium phosphate production went on line in 4Q12,and will begincontributing to earning
48、s in 2013.We estimate 2012E-2014E EPS of Rmb0.90/1.18/1.43,implying growth of 41%/31%/21%yoy.We use the P/B vs.ROE valuation methodology to derive our target price for Xingfa in linewith the rest of our coverage.We assign Xingfa an 18%valuation premium,to reflect its18%P/B premium over comparable co
49、mpanies during the past year.Based on a 2013EP/B ratio of 3.1X and 18%2013E ROE,we derive a 12 month target price of Rmb21.94,implying 32%upside potential.Exhibit 2:Gao Hua and Wind consensus estimates,EPS(Rmb),Revenue(Rmb mn),Net margin(%),Net profit(Rmb mn),2012E,2013E,2014E,2012E,2013E,2014E,2012
50、E,2013E,2014E,2012E,2013E,2014E,GH forecastWind consensusGH vs.consensus,0.900.891%,1.181.22-3%,1.431.54-8%,9,5079,4421%,11,41911,912-4%,12,86414,466-11%,3.5%3.6%-0.1ppt,3.8%3.8%-0.1ppt,4.1%4.0%+0.0ppt,328336-2%,431459-6%,521584-11%,Source:Wind,Company data,Gao Hua Securities Research estimates.Afri
