1-3Q performance is in line with performance forecast
The company announced 1-3Q22 results: revenue 16.17 billion yuan, an increase of 4.5% over the same period last year; return to the mother net profit of 2.15 billion yuan, corresponding to 2.40 yuan per share, an increase of 44.6% over the same period last year, in line with the performance forecast. The net cash flow of the company's operating activities was 3.29 billion yuan, an increase of 4.7% over the same period last year; the deduction of non-net profit of 1.76 billion yuan, an increase of 33.7% over the same period last year, and the non-recurrent profit and loss of 390 million yuan was mainly caused by the company's disposal of shares in subsidiaries.
The company 3Q realized an operating income of 5.06 billion yuan, a decrease of 17.5% and 9.6% compared with the previous month, and a net profit of 485 million yuan, a decrease of 36.3% and 52.7% compared with the previous month. The decline in the company's performance is mainly due to the adjustment of market prices of leading products urea, diammonium phosphate and polyvinyl chloride from high levels, as a result of parking and overhauling in some subsidiaries during the high temperature period, and the company's gross profit margin dropped by 8.7ppt/11.7ppt to 14.7% compared with the previous month.
Trend of development
Diammonium phosphate to maintain the boom, urea, PVC prices may have hit bottom. According to Baichuan Information, the average market price of 3Q22 diammonium phosphate (Hubei) rose 2.5% month-on-month to 4126 yuan / ton, while the export price of diammonium phosphate was at a high level. Considering that the price of phosphate rock remains at a high level of 1000-1100 yuan per ton and the new production capacity is limited, and the price of sulfur for superimposed raw materials is reduced, we believe that the prosperity of phosphate fertilizer is expected to continue. The average price of urea (Hubei) market fell 19.8% month-on-month to 2519 yuan / ton, and we think it may pick up if it hits bottom. The company's urea production capacity of 1.56 million tons is all gas routes, and the cost advantage is expected to be highlighted in the case of persistently high coal prices. PVC (calcium carbide method) the average price in central China market fell 24% to 6537 yuan / ton, which is close to the production cost of self-provided calcium carbide enterprises. we think that if the downstream real estate picks up, PVC prices are expected to hit bottom and rebound.
The layout of new energy materials helps the company to grow for a long time. The company cooperates with Ningde Times, Stanley and other enterprises to plan a total production capacity of 500000 tons of ferric phosphate, 200000 tons of nickel sulfate and supporting raw materials and intermediate products. The company expects to put 300000 tons of iron phosphate and 200000 tons of nickel sulfate in cooperation with Ningde Times into production by the end of 2023 and 200000 tons of iron phosphate in cooperation with Stanley in 2024. We believe that the company has obvious advantages in phosphorus chemical resources and technology, and the establishment of a joint venture with downstream customers to enhance sales certainty is expected to contribute to the growth of the company in the future.
Profit forecast and valuation
We keep our profit forecast of 2.74 billion yuan for 2022 March 23 unchanged. The current share price corresponds to a price-to-earnings ratio of 4.7 times earnings in 2022 / 23. Maintain an outperform industry rating and a target price of 19.80 yuan, corresponding to 6.5 times earnings in 2022 / 23, with 38.7% upside compared to the current stock price.
Risk
The price and sales volume of diammonium phosphate, urea, PVC and caustic soda are lower than expected, and the progress of ferric phosphate is not as expected.