Half-year Loss of Nearly 500 million*ST South Sugar Shell Battle

 Half-year Loss of Nearly 500 million*ST South Sugar Shell Battle

Loss Circle

According to public data, Nanning Sugar Industry was established in July 1996 and listed on the Shenzhen Stock Exchange in May 1999. Nanning Sugar Industry is mainly engaged in the production and sale of mechanism sugar and paper. It has the capacity of processing 48,400 tons of sugarcane per day and producing 700,000 tons of mechanism sugar per year. Its business is relatively single, mainly sugar business. In recent two years, the market share of the companys products in Guangxi is about 9%, and that of the whole country is about 5%.

Since the end of 2016, sugar prices have entered a new cycle of decline. With sugar prices continuing to fall and production costs remaining high, the market efficiency of sugar-making enterprises represented by Nanning sugar industry is poor, and even shows negative growth. It is generally difficult for enterprises to operate.

In the first half of this year, Nanning Sugar Industry was wearing the ST cap in view of its negative audited net profit in 2017 and 2018 consecutive fiscal years. According to the relevant provisions of the Stock Listing Rules of Shenzhen Stock Exchange, Nanning Sugar Industry has been treated as a delisting risk warning since April 4, 2019. The stock abbreviation has been changed from Nanning Sugar Industry to ST Nannan Sugar.

The data show that in 2018, Nanning sugar industry realized 3.598 billion yuan in revenue, an increase of 23.8% over the same period last year, and the net profit loss of shareholders belonging to listed companies was 1.36 billion yuan, a decrease of 603.94% over the same period last year. In 2017, Nanning Sugar Industry lost 194 million yuan, totaling more than 1.5 billion yuan in two years, and the loss amount was close to the companys market value of 1.970 billion yuan.

According to statistics from the Economic Observer, Nannings sugar industry performance has fluctuated alternately from big loss to small profit since its first loss in 2012. The data show that the net profit of the company from 2012 to 2018 is - 310 million yuan, 49.3712 million yuan, - 287 million yuan, 59.8534 million yuan, 18.98 million yuan, - 194 million yuan and - 1.36 billion yuan, respectively. At the same time, in addition to greater performance pressure, Nanning sugar industry is also facing greater debt-servicing pressure. From 2014 to 2018, the scale of corporate liabilities rose sharply, with asset-liability ratios of 73.46%, 70.89%, 76.02%, 80.91% and 99.43% respectively. All of them exceeded 70%, and in 2018 they were close to 100%. Generally speaking, the appropriate level of asset-liability ratio is 40%-60%. The ratio of assets to liabilities of 100% or more indicates that the company has no net assets or insolvency.

On August 14, 2018, Nanning Sugar Industry said in the activities of investor relations: Because the companys main raw material is sugarcane, in order to protect the interests of sugarcane farmers, the company must pay sugarcane sugarcane in full and on time, but the companys product sugar is sold according to the principle of market-oriented, there is a certain credit period for customer accounts receivable, so as to guide. As a result, the company has a large demand for money and a high ratio of assets to liabilities, which seriously affects the profitability of the company.

It is worth mentioning that on August 14, 2019, * ST Nantang disclosed in the Shenzhen Stock Exchange Interactive Exchange that as of August 14, 2019, the number of shareholders of the company was about 40,000. According to Oriental Wealth Choice data, as of July 24, 2019, the average number of shareholder households of A-share listed companies was 50.3 million. Among all A-share listed companies, 31.30% of the shareholders are in the range of 20,000 to 40,000. * The number of ST Nantang shareholders is lower than the market average.

When the reporter of Economic Observer wrote to Nanning Sugar Industry on related issues, the responsible person said that due to performance problems, the leaders are not convenient to interview, and said that the companys loss is a common problem in the industry (international sugar depression, low sugar price, sales price below cost price). The person in charge revealed that the company had not been interviewed by the media for a long time due to two consecutive years of losses.

Performance Defense

Chinas sugar industry is a typical three-year, three-year cycle industry, that is, showing the cyclical characteristics of increase-decrease-decrease-increase-price-increase-increase. Nanning Sugar Industry Annual Report pointed out that the output of sugar and sugar will be affected by the price of sugar last year. When the price of sugar rose or was high last year, sugarcane growers would increase the planting area and investment under the stimulation of high sugar price, resulting in a significant increase in sugar production in that year. On the contrary, the price of sugar fell or was at a low level last year. At grain time, sugarcane farmers will reduce their input and even switch to other crops, resulting in a decline in sugar production and a rise in sugar prices in that year.

On June 24, Nanning Sugar Industry disclosed the latest information in Shenzhen Stock Exchange. At that time, the average cost of producing sugar per ton was about 6,100 yuan per ton. The price quoted by sugar factories in Guangxi was about 5,200 yuan per ton, and the production cost was still far higher than the price. As of August 22, the spot quotation of sugar mills in Guangxi was about 5650 yuan per ton, up 400 yuan per ton from a month ago and 600 yuan per ton from the beginning of the year. Generally speaking, the total production cost of sugar industry in Guangxi is between 5800 and 6000 yuan per ton, which has not yet reached the cost line.

From the global market point of view, because most of the sugar-eating countries headed by Brazil, India, Thailand, the European Union and China have increased their production in recent years, the global sugar market has experienced obvious oversupply, and the international sugar price has been in the downward channel for nearly three years. The price of ICE raw sugar has dropped from 24 cents per pound in the second half of 2016 to about 12 cents per pound, a decline of about 10%. 50%.

After two years of continuous losses being capped, how to turn the deficit around in the next reporting year has become an important goal for Nanning sugar industry.

On January 31, Nanning Sugar Industry announced that it had received the approval of the State-owned Assets Management Commission of Guangxi Zhuang Autonomous Region. The State-owned Assets Management Commission of the Autonomous Region agreed to transfer 76,813,800 shares of Nanning Sugar Industry owned by Nanning Zhenning Assets Management Co., Ltd. (hereinafter referred to as Zhenning Company) to Guangxi Rural Investment Group Co., Ltd. (hereinafter referred to as Zhenning Company). It is called Guangxi Agricultural Investment Group. After the transfer, the total share capital of Nanning sugar industry remains unchanged, 23.7% of the total share capital of Guangxi Agricultural Investment Corporation and 18.5% of the total share capital of Zhenning Company. Guangxi Agricultural Investment Corporation has become the controlling shareholder of Nanning Sugar Industry.

According to Guangxi Agricultural Investment Group, taking over the offer is a major issue planned by the government of the Party Committee of the Autonomous Region in order to accelerate the second entrepreneurship of the sugar industry and the strategic development of the sugar industry. It belongs to the overall adjustment of the state-owned assets at the level of the Autonomous Region and is conducive to strengthening and improving the supervision of the state-owned assets.

Liu Min, an analyst at Debon Securities, said in the economic observation report that in the short run, Nanning Sugar Industry will get continuous blood transfusion after replacing its controlling shareholders. As long as sugar prices gradually improve, the company will be able to get out of the cycle trough. At present, Chinas sugar industry is undergoing a series of reforms, and the past days of holding on to its own sugar district to make money are over. In the long run, the value of Nannings sugar industry lies in whether its operating efficiency can be improved, the cost per ton of sugar can be reduced, and the comprehensive effect can be improved.

At present, sugar has entered the last year of the bear market cycle. It is reasonable that the year 2019/2020 should usher in a bull market turning point. However, market participants generally believe that the trend of sugar prices has not yet appeared, which also means that Nanning sugar industry is facing difficulties in turning around losses.

Liu Min believes that sugar price will rise at least until 2021. From the current situation, the short-term breakthrough of 6,000 yuan per ton of sugar price is less likely. However, considering the cost, this year the contract acquisition system of sugarcane will be implemented. If the purchase price continues to decrease by 10 yuan/ton compared with last year, the total cost will drop to 5,900 yuan/ton. Next year, the probability of the performance of Nanning sugar industry will be greatly increased.

So, Nanning sugar industry as the representative of the sugar industry shares in the future there is no investment value? Liu Min pointed out that the domestic sugar market has a shortage of about 5.7 million tons per year, and the overall supply is in short supply. At the same time, there is still a huge space for the development of the comprehensive benefits of the sugar industry in China. Although the overall operating efficiency of sugar enterprises in our country is not high, there must be leading enterprises with high comprehensive utilization rate of sugar in the future to stand out and become the existence of crossing the bull bear. Liu Min said.

Source: Responsible Editor of Economic Observation Network: Yang Zeyu_NF6036