A-share IPO | The fertilizer production company Red Square (603395.SH) has started the IPO application to become the main operating entity of the agricultural fertilizer business sector of China National Salt Industry Group.

On November 15, Hong Sifang (603395.SH) initiated its subscription with an issue price of 7.98 yuan per share and a subscription limit of 16,000 shares. The price-to-earnings ratio is 10.62 times, and it belongs to the Shanghai Stock Exchange, with Guoyuan as its exclusive sponsor. The prospectus reveals that Hong Sifang is a subsidiary of China National Salt Industry Corporation, specializing in the research, production, sales, and services of compound and nitrogen fertilizer products. It is the operating entity of the agricultural fertilizer business sector of China National Salt Industry Corporation. The company has established a complete research, production, sales, and agricultural chemical service system centered around compound fertilizer products, extending to upstream nitrogen fertilizer industries. Its products mainly include conventional compound fertilizers, various crop-specific fertilizers, new special fertilizers, nitrogen fertilizers, and hundreds of varieties. The company's sales volume of compound fertilizers ranks among the top in the industry in China. According to statistics from the China Phosphate Compound Fertilizer Industry Association, there are more than 3,000 compound fertilizer companies nationwide holding production licenses, with a total production capacity of about 200 million tons. The top 200 companies account for 70% of the total production capacity, but most companies are small in scale, leading to severe homogenization of products and intense market competition. There is still considerable room for consolidation in the compound fertilizer industry. With the increasing emphasis on safety and environmental protection and the advancement of agricultural modernization, leading companies in the compound fertilizer industry with advantages in brand, production scale, and marketing channels will benefit from industry consolidation. Currently, Hong Sifang has production bases in Hefei, Anhui, Liling, Hunan, Suizhou, Hubei, and Fuyu, Jilin, with an annual production capacity of 300,000 tons of urea, 2.3 million tons of various compound fertilizers, and 50,000 tons of water-soluble fertilizers. According to statistics from the China Phosphate Compound Fertilizer Industry, the company's rankings in the compound fertilizer industry in terms of production and sales in 2019, 2020, and 2021 were 13th, 13th, and 12th, with market shares of approximately 1.75%, 2.08%, and 1.93%, respectively. It is reported that Hong Sifang plans to use the raised funds for the following projects: In the prospectus, Hong Sifang pointed out that in the future, with the construction and commissioning of the 200,000 tons per year new high-efficiency special fertilizer project and the 50,000 tons per year special high-quality potash fertilizer for economic crops and supporting engineering project, the company will fill the product gap in high-quality sulfate-potassium compound fertilizers, further enhancing its market position. In terms of finances, in 2019, 2020, and 2021, the company's operating income was approximately 2.516 billion yuan, 2.66 billion yuan, and 2.962 billion yuan, respectively. The net profit was approximately 99.26 million yuan, 116 million yuan, and 106 million yuan, respectively. It should be noted that the prospectus specifically warns investors to pay attention to the risk of debt repayment capacity. At the end of 2019, 2020, and 2021, the company's asset-liability ratios (consolidated) were 67.29%, 66.65%, and 59.80%, the current ratios were 0.81 times, 0.66 times, and 0.68 times, and the quick ratios were 0.60 times, 0.45 times, and 0.29 times. The company's high asset-liability ratio and low current ratios and quick ratios are mainly due to the fact that the company's fixed asset investment mainly relies on operational cash flow, short-term liabilities, and spontaneous liquid liabilities to meet its own funding needs. If the company cannot continuously obtain financing from financial institutions, recover customer payments in a timely manner, or make timely payments for large short-term funds, the company will face the risk of insufficient debt repayment capacity, which will have a significant adverse impact on its production and operations.