1-3Q22 performance is lower than we expected.
The company announced 1-3Q22 results: revenue of 3.62 billion yuan, an increase of 9.3% over the same period last year; net profit of 504 million yuan, corresponding to 0.59 yuan per share, an increase of 30.1% over the same period last year; deduction of non-net profit of 479 million yuan, an increase of 27.9% over the same period last year; and net cash flow of operating activities of 283 million yuan. 3Q22 achieved revenue of 625 million yuan, a decrease of 46% and 60% compared with the same month-on-month ratio, and a net profit of 12 million yuan per share, corresponding to a profit of 0.01yuan per share, a decrease of 90.8% and 96.3% compared with the same / month-on-month ratio, which was lower than we expected. The decline in the company's performance is mainly due to the decline in the prices of compound fertilizer and monoammonium phosphate products, as well as the decline in sales of the company's main products due to the low willingness of dealers downstream of compound fertilizer to replenish inventory. 3Q22's operating profit margin has decreased by 12/23.8ppt to 2.1% compared with the previous month.
Trend of development
Phosphate rock boom is expected to continue, improve the industrial chain to enhance the profitability of the company. According to Baichuan information, the current price of phosphate rock in Guizhou and Hubei is 1000-1100 yuan / ton, and the price of phosphate ore is at a historically high position. As the demand of new energy materials such as lithium iron phosphate increases, and the supply side is affected by events such as safety inspections, and some enterprises are reluctant to sell, leading to tight supply, we believe that phosphate rock landscape is expected to continue. The phosphate ore mining scale of Guizhou Lufa, a wholly owned subsidiary of the company, is 800,000 tons per year. The phosphate rock mined is mainly supplied by the phosphate fertilizer production company, and some of the phosphate ores are sold to the outside world. At the same time, the construction of Yongwen Mine in Guizhou Lufa in 3 million / year (the comprehensive phosphorus grade is more than 30%) is under the process of design and approval. The company announcement will be sent to the State Mine Safety Supervision Bureau for evaluation in the near future, and will immediately enter the construction stage after approval. At the same time, the company has an annual production scale of 380,000 tons of pyrite and kaolin. The company has the matching of upstream resources such as phosphate rock and pyrite, and the industrial chain is relatively perfect, which will further enhance the profitability of phosphate fertilizer.
The layout of new energy materials will help the company to grow for a long time. Guizhou Silt New Energy Materials Technology Co., Ltd., a subsidiary of the company, has completed registration on September 16, 2022, with experience covering new energy, investment in new materials industry, project construction, technical research and development of supporting products. We believe that the new business layout is expected to help the company seize the development opportunities of new energy vehicles, energy storage and related supporting projects, give full play to the advantages of the company's high-grade phosphate rock resources, and promote the company's long-term and stable development.
Profit forecast and valuation
Due to the decline in the price and sales of monoammonium phosphate and compound fertilizer, we cut our profit forecast for 2022 Lexi by 27.6% to 631 million yuan. The current share price corresponds to a price-to-earnings ratio of 11.1 to 10.6 times earnings for 2022 prime in 23 years. As a result of the lower earnings forecast, we simultaneously lowered our target price by 20% to 9.6 yuan, corresponding to 13.5 times 2022 price-to-earnings ratio and 13 times 2023 price-to-earnings ratio, which is 22.3% higher than the current stock price and maintains an outperforming industry rating.
Risk
The price of monoammonium phosphate declined, the export volume of monoammonium phosphate was lower than expected, and the sales volume of compound fertilizer was lower than expected.
