Sanonda: Business Growth will Continue         

Located in Jingzhou, Hubei province, Hubei Sanonda Co., Ltd. (Sanonda, SZ: 000553) was listed on the Shenzhen Stock Exchange in 1993. At present, the company mainly produces DMPAT (abbreviation for O, O-dimethyl phosphoramidothionate), glyphosate, paraquat, dichlorvos, trichlorfon, acephate.
    On February 19th, 2009, Sanonda announced that it had revenue of RMB2.21 billion and a net profit of RMB164 million in 2008, up 34.13% and 454.76% respectively over 2007. Its revenue growth rate in 2008 raised by 20 percentage point compared with 2007 and the gross profit rate also got a 10 percentage point increase. Among them, the revenue growth was mainly caused by the company's increased production capacity and enlarged sales of its main products, i.e. DMPAT and glyphosate, and also the expanded export of products like DMPAT. The growth in gross profit rate was mainly because of a significant price rise in 2008 for products like glyphosate, paraquat and DMPAT, exceeding the growth of costs.

Pesticide market to recover     

At present, the pesticide market is still not active, but this phenomenon is not caused by high prices of pesticide products. The ice disaster early in 2008 and the continuous rainfall in last May and June in Guangdong province increased the uncertainty of outbreaks of agricultural pests and diseases; moreover, the continuing decline of pesticide prices caused by the current economic crisis also led to notable drop in pesticides storage and a thick hesitant atmosphere among the pesticide enterprises. However, the pesticide market is not appreciably affected by the economic crisis because of agriculture's rigid demands for pesticides. With the beginning of spring plowing, the pesticide market will recover gradually, too. Since February 2009, the company's pesticide products' sales had begun to recover and the inventory decreased, too.


Revenue in 2009 will remain optimistic    

1) DMPAT: to maintain the monopoly position    

DMPAT is an important intermediate for synthesizing pesticides like methamidophos and acephate. Sanonda's DMPAT capacity is 40 000 t/a at present, and this product accounts for more than 60% of the domestic market share. In 2008, the DMPAT price kept an over RMB30 000/t high and the company's actual sales volume was about 30 000 tons, so DMPAT was one of Sanonda's major profitable products that year. In 2009, DMPAT price began to fall and was hovering at about RMB18 000/t by the end of February. Since the production cost of DMPAT is expected to be around RMB12 000/t, the company can still achieve a 30% - plus gross profit rate. If the sales volume this year is the same as in 2008, DMPAT will contribute RMB2 billion to the company in 2009.

2) Glyphosate: advantages are not significant      

Glyphosate's price has recently rebounded, but Sanonda gets little profit from this product because it uses the IDA (iminodiacetic acid) production method. The comprehensive costs of glyphosate's main raw materials of iminodiacetic diethylamino cyanide and yellow phosphorus added with the production costs can be almost equal to glyphosate's sales revenue. However, the completion of Sanonda's 20 000 t/a PMIDA project will help reduce glyphosate costs and improve its gross profit rate. According to the company's plan, its glyphosate capacity will eventually be expanded to 40 000 tons per year.

3) Acephate: worth expecting     

Acephate is an ideal alternative for methamidophos, a highly toxic pesticide. At present, the company's production capacity is about 5 000 tons. The company also has a significant advantage in low cost raw materials since the intermediate for producing acephate is DMPAT. At present, acephate is in tight supply in China's domestic market. The 95% acephate technical is priced at RMB65 000/t in the market, 30% acephate wettable powder at RMB21 000/t and 100% acephate technical for export at RMB75 000/t. It is estimated that acephate's gross profit rate should be about 40%. In 2009, this product may add sales of RMB150 million for the company.

4) Paraquat: a new profit spotlight    

The company's paraquat capacity is 4 500 tons per year now and is expected to reach 8 000 to 10 000 tons in 2009. At present, the production cost for paraquat is RMB15 000/t while the market price is RMB18 000/t, so its gross profit rate can reach over 20%. Since pyridine is the key raw material for making paraquat and has become a hotspot in China's pesticide industry, Sanonda also plans to build a pyridine project with an annual capacity of 10 000 tons to meet its own needs.

In addition, Sanonda is located at the edge of the Jingjiang River and enjoys low-cost water transport which greatly facilitates the company's raw materials purchase and products transportation. The company's location has rich brine resources, and brine is a major chemical raw material for producing caustic soda and pesticides. At present, the company can exploit over 300 000 tons of brine every year, which not only meets its needs for producing caustic soda and pesticides, but also leaves extra industrial salts for sale. During this period when the price of industrial salt is relatively low, the company will strengthen its sales power so as to achieve over 60% sales revenue growth over last year.

    In addition, Sanonda has announced boosting its formaldehyde project. (page 24)