Contents
Key Debate: Long-term Industry Fundamentals Remain Attractive .......................................................................... 3
Industry Risk-Reward Summary................................................................................................................................... 4
Investment Case: Recovery Ahead – Build Positions Now........................................................................................ 7
Weakness in 2009 Offers an Investment Opportunity ...................................................................................................... 7
Sinofert Attractive on Potash Recovery ............................................................................................................................ 7
Equal-weight CBC Due to Urea/Phosphate Oversupply and Regulatory Risks ............................................................... 8
Valuation Based on Residual Income ........................................................................................................................... 9
Sinofert (297.HK): OW, PT HK$4.3 ....................................................................................................................................... 9
China BlueChemical (3983.HK): EW, PT HK$4.7 .................................................................................................................... 9
Key Assumptions in Our Scenario Analysis............................................................................................................................ 9
China Fertilizer Industry – Proprietary Analysis........................................................................................................ 10
Fertilizer Demand Decline over Last Two Years… ............................................................................................................................................... 10
…Gives Potash the Strongest Outlook.................................................................................................................................................................. 10
Fertilizer Demand to Return to a Growth Trend in 2010 ....................................................................................................................................... 11
Forecasting Fertilizer Demand .............................................................................................................................................................................. 12
China Fertilizer Policies............................................................................................................................................... 14
Nitrogen (N) Sector: Oversupply ................................................................................................................................ 17
Phosphate (P) Sector: Oversupply............................................................................................................................. 19
Potash (K) Sector: Shortage ....................................................................................................................................... 20
Company Analysis ....................................................................................................................................................... 22
Sinofert Holdings: Leveraged to Potash Recovery: Overweight ............................................................................. 23
Consolidated Financial Summary ............................................................................................................................... 24
Risk-Reward Snapshot: Sinofert (0297.HK, HK$3.54, OW, PT HK$4.3) ................................................................... 25
Valuation ....................................................................................................................................................................... 25
Scenario Analysis ........................................................................................................................................................ 28
Sinofert: Company Profile........................................................................................................................................... 30
China BlueChemical Ltd: Urea Oversupply and Regulatory Risk Pose Threat to Long-term Profitability: EW.. 32
Consolidated Financial Summary .............................................................................................................................. 33
Risk-Reward: China BlueChemical (3983.HK, HK$4.26, EW, PT HK$4.7)................................................................ 34
Valuation ....................................................................................................................................................................... 37
Scenario Analysis ........................................................................................................................................................ 37
CBC: Company Profile................................................................................................................................................. 40