One of China’s major integrated salt producer. Jingshen is primarilyengaged in the exploration of rock salt as well as the production andsales of salt and salt chemicals. Boasting seven salt mines andexploration rights across two regions, the Company’s main productsinclude industrial and table salt, soda ash and anhydrous sodiumsulfate. Its annual production capacity of these three major productcategories is 3.7mn tonnes, 400,000 tonnes and 300,000 tonnesrespectively. In addition, Jingshen also enjoys a renowned brand nameand is held in high regards within the industry.

As an industry giant, Jingshen embraces new opportunities as theindustry reform kicks off. As reform of the salt industry officially kicksoff in 2016, salt producers will be permitted to enter the high margin saltsales field (gross profit for salt production and salt sales are~Rmb200/tonne and ~Rmb1,000/tonne respectively). We anticipate saltproducers will speed up their expansion into the sales arena in 2016,followed by accelerated growth from 2017 onwards. In addition, therapid increase in sales volume of high-end products will also help boostthe industry’s gross margin (fast growth of over 20% over the comingthree years). Hence, salt producers will see a sharp increase in theirgross margins over the near-term.

With steady growth in soda ash and caustic soda salt, Jingshen totrump industry average growth thanks to its advantages in rawmaterials and cost. Due to subdued demand from the downstream,soda ash and caustic soda salt as well as sodium carbonate are comingunder downward pressure. However, given: (i) Jingshen uses rock saltas its raw material instead of sea salt; (ii) integrated salt and chemicalsoperations; and (iii) cost advantage, its soda ash/caustic soda salt aswell as sodium carbonate operations are running at above theirdesignated capacity currently. Moreover, these businesses havemaintained above industry average gross margins. As its capacityexpansion projects (funded by its IPO proceeds) will be put intooperation in 2017, Jingshen will further lift its cost advantage. Hence,the Company’s growth rate and gross margin will continue to outpacethat of the industry.

Rapid growth underpinned by four major factors:

Supply: Jingshen’s salt mines contain total halite ore of 2,564mntonnes, suggesting extensive resources;

R&D: owns 13 patents and five leading domestic core technologieson the back of long-term investments into R&D;

Production: notable advantage in cost as the Company employsrecycling technology to boost its resource utilization ratio;

Sales: Jingshen is based in close proximity to its target markets withconvenient transportation routes.

Jingshen has forged its core competitiveness based on these four factors, which will continue to underpinits rapid growth in the future.

IPO proceeds to fund capacity expansion and unleash growth potential. The IPO proceeds ofRmb332mn will be used to fund its capacity mix optimization and energy conservation upgrading projects.Apart from adjusting its product mix by increasing the capacity for table salts and high-end products (weforecast Jingshen’s high-end salt products will maintain sales volume and price growth of 20% and 10%respectively over the next three years), the projects will also enable the Company to reduce its coalconsumption by 60% on every tonne of salt produced, leveraging on the MVR technology (forecast toreduce its annual production cost by Rmb45mn-plus). Hence, these projects will help to boost its profitsand strengthen its core competitiveness, laying down a solid foundation for Jingshen to push forwardwith its development strategy.

Risks: (i) institutional reform for the salt industry; (ii) fluctuations in the prices of major energy sources.

Earnings forecast, valuation and investing rating: Thanks to the opening up of the salt productionindustry, Jingshen’s cooking salt business will see rapid growth over 2016-17. Meanwhile, the IPOproceeds will help the Company to improve its product mix and lower its cost. In addition, the listing willopen up new financing channels for Jingshen, which is conducive to lowering its financial expenses.Taking into account the above, we believe Jingshen’s earnings will improve significantly in 2016-17, withCAGR on net profit forecast to exceed 30%. We forecast its 2015-17E EPS to be Rmb0.16/0.22/0.34.Given the valuation of comparables, we set its target price at Rmb7.54 (35x 2016E P/E) and initiate BUY.