Tomorrow, there will finally be a new IPO subscription on the main board!

According to Gelonghui, on November 15, the new stock Hong Sifang (603395) on the Shanghai main board will be available for subscription. This IPO will issue 50 million shares, accounting for 25% of the post-issue total share capital, with an issue price of 7.98 yuan per share and a PE ratio of 10.62, significantly lower than the industry PE ratio of 22.23.

Since Hong Sifang is a low stock price stock under 10 yuan, both its total market value and circulating market value are relatively low. Furthermore, there are no price fluctuation limits on the first five trading days after the IPO for new stocks in the Shanghai and Shenzhen markets, making new listings likely targets for speculative trading. Coupled with this year’s favorable atmosphere for new shares in the A-share market, it is expected that Hong Sifang will likely close up on its first trading day, suggesting active subscription.

At the same time, the number of newly listed stocks in the A-share market this year has significantly decreased compared to previous years, resulting in a lower winning rate in the lottery. Everyone should value and cherish each opportunity.

This year, the profit effect of IPOs in the A-share market is truly impressive. According to Gelonghui statistics, as of November 14, among the 83 companies listed in the A-share market this year, only one broke below par on its first day, one remained flat, while the remaining 81 all closed up on the first day, averaging a rise of over 225% on their debut.

Therefore, for new stock subscriptions in the A-share market, selling on the first trading day after winning the lottery has a strong probability of profiting. However, for long-term holding, one must consider the company's fundamentals and valuation levels. Next, let’s introduce the specific situation of Hong Sifang.

1

Hong Sifang is a fertilizer company controlled by China Salt Group, with a gross margin lower than the industry average.

Hong Sifang's full name is 'Zhongyan Anhui Hong Sifang Fertilizer Co., Ltd.', established in 2012 in Hefei, Anhui by two initiators, Hong Sifang Holding and Hongbang Investment. Currently, Hong Sifang's controlling shareholder is Hong Sifang Holding, which is backed by the central enterprise Zhongyan Group.

After years of development, Hong Sifang has established production bases in Hefei, Anhui; Liling, Hunan; Suizhou, Hubei; and Fuyu, Jilin. The variety of products can meet the fertilization needs of different crops in various environments and soil conditions in major planting areas across the country. At the same time, the company has established a stable dealer network covering the main planting areas.

As a fertilizer production enterprise, Hong Sifang's main products are compound fertilizers and nitrogen fertilizers, mainly sold to end agricultural planting customers through dealer channels. From 2021 to the first half of 2024, compound fertilizers contributed over 80% of the company's revenue.

The company's compound fertilizer products mainly include three categories: conventional compound fertilizers, crop formula fertilizers, and new special fertilizers. Nitrogen fertilizer is a type of mineral fertilizer that provides nitrogen nutrients to plants, and its nitrogen fertilizer products mainly include urea and ammonium nitrogen fertilizers.

The company's conventional compound fertilizer products, image source: prospectus.

In terms of performance, in 2021, 2022, 2023, and the first half of 2024 (referred to as the 'reporting period'), Hong Sifang's revenue was approximately 3.054 billion yuan, 4.17 billion yuan, 3.899 billion yuan, and 1.975 billion yuan, respectively, with corresponding net income approximately 0.111 billion yuan, 0.123 billion yuan, 0.16 billion yuan, and 0.086 billion yuan.

Although the company's net income has shown a growth trend in recent years, performance declined in the first three quarters of this year.

According to the prospectus, after review, the operating revenue of Hong Sifang for January to September 2024 is approximately 2.666 billion yuan, a year-on-year decrease of 11.41%; the corresponding net income is approximately 0.114 billion yuan, a year-on-year decrease of 14.44%. This is mainly due to the impact of the macro economy since the third quarter of 2024, leading to a downward trend in the prices of fertilizer market products. Downstream fertilizer dealers are adopting a wait-and-see attitude, stocking up cautiously, while abnormal climatic conditions have delayed the planting season, resulting in a decrease in the sales volume of major products.

During the reporting period, the comprehensive gross margin of Hong Sifang was 13.69%, 11.18%, 12.57%, and 11.81%, respectively, which is lower than the average level of comparable listed companies in the industry. The difference in the company's gross margin from its peers is mainly due to the increase in phosphate fertilizer prices since 2021, resulting in an increase in the gross margins of companies like Anhui Sierte Fertilizer Industry that possess phosphate rock resources.

Comparison of the comprehensive gross margins between the company and comparable companies in the industry, image source: prospectus.

2

In 2023, the company ranked tenth in compound fertilizer production and sales, with a market share of 2.45%.

Chemical fertilizer, also known as inorganic fertilizer, refers to fertilizers made using chemical or physical methods that contain one or more nutrients necessary for the growth of crops. Chemical fertilizers are characterized by high nutrient content, requiring less application, and their effects are fast, as most are easily soluble in water, making them quickly absorbed and utilized by crops. Chemical fertilizers are important basic production materials in agriculture and play a significant role in increasing crop yields.

Currently, china has become the largest producer and consumer of compound fertilizers globally. However, with the development of agricultural production in china, the unreasonable application of single fertilizers has become increasingly prominent. Producing scientifically proportioned and conveniently usable compound fertilizers has become the development direction of china's fertilizer industry.

As a fertilizer production enterprise, Hong Sifang faces the risk of market demand fluctuations.

Since 2015, the Ministry of Agriculture has organized and implemented the zero growth action for fertilizer usage by 2020, promoting a continuous decrease in fertilizer use for crops and an increase in efficiency. In 2022, the Ministry of Agriculture and Rural Affairs developed the "Action Plan for Reducing Fertilizer Usage by 2025," aiming to further reduce the total amount of agricultural fertilizers applied.

Image source: Prospectus

The overall increase in the fertilizer market is suppressed by policy influences, with demand for product structure shifting from primarily ordinary compound fertilizers to highly efficient, specialized, functional, and precise fertilizers, especially focusing on functionality related to soil improvement, reduction and efficiency enhancement, comprehensive nutrition, and eco-friendly aspects, with recognition and usage increasing year by year. If the company cannot strengthen technological innovation and new product research and development, and adjust its product structure, it may affect the company's operational performance.

The number of enterprises in the compound fertilizer industry where Hong Sifang operates is numerous, with low concentration. According to statistics from the China Phosphate and Compound Fertilizer Industry Association, there are currently over 3,000 compound fertilizer enterprises in the country holding production licenses, of which the top 200 enterprises account for 70% of total capacity, with most enterprises being small in scale, severely homogenized products, intense market competition, and significant space for concentration and consolidation in the compound fertilizer industry.

Currently, the listed companies in the compound fertilizer industry mainly include Anhui Sierte Fertilizer Industry, Shenzhen Batian Ecotypic Engineering, Anhui Liuguo Chemical, Xinyangfeng Agricultural Technology, Stanley Agriculture Group, Chengdu Wintrue Holding, and Yunnan Yuntianhua. In 2023, Hong Sifang ranked 10th in the compound fertilizer production and sales industry, with a market share of approximately 2.45%.

With the continued promotion of fertilizer reduction and efficiency enhancement policies and increasingly strict environmental safety regulations, the industry has evolved into an all-round competition based on technology and product innovation, product quality, marketing networks and services, and the completeness of the industry chain. The company needs to strengthen technological innovation and new product development; otherwise, it may affect product competitiveness and market share.

According to the issuance price, Hong Sifang is expected to raise a total of 0.399 billion yuan, which is lower than the approximately 0.496 billion yuan planned for the use of raised funds. After deducting issuance expenses, the net amount will be invested in the order of priority into the expansion of the 200,000 tons/year new-efficiency specialty fertilizer project, the expansion of the 50,000 tons/year specialty high-quality potash fertilizer for cash crops and supporting projects, repayment of bank loans, and replenishment of working capital.

Use of raised funds, image source: Prospectus