1-3Q21 performance meets the previous forecast

Sirte announced 1-3Q21 results: revenue of 3.309 billion yuan, an increase of 0.03% over the same period last year, and net profit of 387 million yuan, an increase of 92.44% over the same period last year, corresponding to earnings per share of 0.45 yuan, which is in line with the company's previous performance forecast. 1-3Q21 deducted non-net profit of 375 million yuan, an increase of 100.26% over the same period last year. The sharp increase in performance is mainly due to the increase in global food prices and the increase in fertilizer demand, but the underoperation of overseas facilities has led to a shortage of global monoammonium phosphate supply. The rise in monoammonium phosphate prices of 1-3Q21 company has led to a substantial increase in profitability. The profit margin of 1-3Q21's main business has increased by 9.1ppt to 26.1% year-on-year, and operating profit margin has increased by 6.5ppt to 14.1% compared with the same period last year. As of the end of 3Q, the company's inventory was 880 million yuan, an increase of 96.2% over the previous month.

3Q21 achieved an operating income of 1.158 billion yuan, down 14% from 16% compared with the previous month. We expect it to be mainly due to the delayed planting of winter wheat and the delayed delivery of the company's compound fertilizer products; the net profit of 3Q21 is 135 million yuan, an increase of 100% over the same period last year, mainly due to the increase in the price of monoammonium phosphate to increase the profit margin of 3Q's main business to 26.7% compared with the same period last year.

Development trend

The prosperity of monoammonium phosphate industry is expected to continue. Since the beginning of the year, the price of monoammonium phosphate of the company has risen 64% to 3450 yuan / ton, as the rising prices of food crops have driven up the demand for chemical fertilizers, as well as the underoperation of overseas plants, as well as the rise in the price of raw materials. Due to the relatively perfect integrated industrial chain of the company, the increase in the price of monoammonium phosphate led to a significant increase in profits. Looking ahead, we expect the monoammonium phosphate boom to continue due to less new global phosphate production capacity and higher food crop prices that are good for fertilizer demand.

Plans to enter the field of new energy materials, is expected to open up the company's growth space. On September 21, the company announced that it signed a cooperation framework agreement with Rongjie Investment and AVIC Trust, and the company plans to transfer a total of 70% of its wholly-owned subsidiary Guizhou Lufa to Rongjie Investment in two stages. The company plans to jointly set up a lithium iron phosphate business joint venture company with Rongjie Investment (70% equity held by Sirte). The company expects a total investment of 2 billion yuan, with a target output of 50,000 tons per year; at the same time, the company plans to set up a joint venture company with Rongjie Investment in iron phosphate business (51% shareholding by Sirte), with a total investment of 1.5 billion yuan and a target output of 100,000 tons per year. We believe that this cooperation will help to promote the development and utilization of the company's phosphate rock resources, improve the layout of the phosphorus chemical industry, and cut into the field of new energy materials is expected to promote the company's business transformation and upgrading and expand the growth space.

Profit forecast and valuation

Due to the sharp rise in the price of monoammonium phosphate, we have raised the earnings forecast for 2021 Universe by 51%, 28%, to 516 million yuan and 530 million yuan, respectively, and the company's share price corresponds to the price-to-earnings ratio of 22.8 × 22.2x for the year 2021. Due to higher earnings forecasts and improved valuations of the company's foray into new energy materials, we raised our target price by 108% to 15 yuan, corresponding to an 8.6% upside and a 24x price-to-earnings ratio in 2022 to maintain an outperforming industry rating.

Risk

The price of monoammonium phosphate is lower than expected, the progress of the joint venture project is lower than expected, and the controlling shareholder's equity is changed.