The leading domestic phosphate and compound fertilizer enterprises have significant advantages in the integrated industrial chain. The company is a domestic leading enterprise of phosphate and compound fertilizer, relying on the advantages of rich high-quality raw material resources of Mawei Mountain Pyrite in Xuanzhou and Kaiyang Phosphate Mine in Guizhou Province. now it has formed a relatively complete integrated industrial chain from pyrite sulphuric acid to phosphate compound fertilizer production and sales. At present, the company has a production capacity of 2.25 million tons of ternary compound fertilizer and monoammonium phosphate, 1.15 million tons of sulfuric acid, 450000 tons of phosphoric acid, 800000 tons of phosphate rock (Mingniwan Mine) and 380000 tons of pyrite ore. Another 3 million tons of phosphate rock (Yongwen phosphate rock) is under planning and construction.

The price of phosphate and compound fertilizer has gone up in China. Since the second half of 2020, under the macro background of the gradual balance of domestic supply and demand and the increasingly prominent importance of food, the prosperity of phosphate and compound fertilizer industry has bottomed out and the product price has risen sharply. According to Zhuochuang data, as of June 7, 2022, compound fertilizer (Jiangsu 45%Cl) was quoted at 4050 yuan / ton, up 52.83% from the same period last year and 22.73% at the beginning of the year; monoammonium phosphate (55% powder from COSCO Intel Corp) was quoted at 4525 yuan / ton, up 66.06% from the same period last year and 57.39% from the beginning of the year. As a leading domestic phosphate and compound fertilizer company, the company is expected to fully benefit from the upward boom in the industry.

Phosphate rock, pyrite prices rose sharply, the company's cost advantage is further highlighted. Driven by reduced supply and price differences at home and abroad, phosphate rock prices have risen sharply. According to Baichuan Yingfu data, as of June 7, 2022, phosphate rock (28% of Hubei Yihua) was quoted at 770 yuan per ton, up 71.11% from the same period last year and 24.19% from the beginning of the year. Driven by the sharp increase in downstream market demand and exports, the prices of pyrite and sulfuric acid have also risen sharply.

According to Baichuan Yingfu data, as of June 7, 2022, the average market price of pyrite was 906 yuan / ton, up 95.68% from the same period last year and 82.66% from the beginning of the year. Sulfuric acid (Zhejiang Jiahua 98%) quoted 1025 yuan / ton, up 65.32% from the same period last year and 88.07% higher than at the beginning of the year. In the context of the sharp rise in raw material prices, the company's cost advantage is further highlighted.

Lay out the new energy industry and open up the space for long-term growth. On September 22, 2021, the company announced that it intends to transfer 70% of the equity of Guizhou Lufa, a wholly-owned subsidiary, to Rongjie Investment, and to build a joint venture with Rongjie Investment to build a lithium iron phosphate company and an iron phosphate company. The total investment of Lithium Iron Phosphate Company is estimated to be 2 billion yuan, with a target output of 50,000 tons per year (10,000 tons per year for the first phase, 20,000 tons per year for the second phase and 20,000 tons per year for the third phase). The iron phosphate company expects a total investment of 1.5 billion yuan and a target output of 100,000 tons per year (40,000 tons per year for the first phase of the project and 60,000 tons per year for the second phase of the project). After the completion of the project, the company's phosphorus chemical industry layout will be further improved and the company's market competitiveness will be enhanced.

Profit forecast. We estimate that the net profit of the company from 2022 to 2024 is 6.20,7.23 and 801 million yuan respectively, and the corresponding EPS is 0.73,0.85,0.94 yuan respectively. With reference to the valuation of the comparable company, it will be given 17 times PE in 2022, corresponding to the target price of 12.36 yuan, with a "better than the market" rating for the first time.

Risk hint. Downstream demand is lower than expected, product prices are falling, project progress is not as expected, and the macro-economy is declining.