Incident: Hubei Yihua disclosed the report for the third quarter of 2022. For the first three quarters of 2022, the company achieved operating income of 16.171 billion yuan, +4.5%; net profit of 2.151 billion yuan, +44.62%; 2022Q3 achieved revenue of 5.056 billion yuan in a single quarter, -17.46%, -9.6% month-on-month, and 485 million yuan in net profit of 485 million yuan, -36.28% YoY and -52.8% YoY.
Prices of main products have been adjusted. We are optimistic that demand for winter storage and spring farming fertilizer will fall to a certain extent in the third quarter of 2022. The prices of the company's main products, urea, diammonium phosphate, and PVC, have all declined to a certain extent. According to Wind data, the average prices of urea, diammonium phosphate, and PVC in the third quarter of this year were 2,533 yuan/ton, 4134 yuan/ton, and 6,604 yuan/ton, respectively, -18.9%, -4.1%, and -23.5%, respectively; -7.3%, +17.4%, and -31.6%, respectively. In the fertilizer sector, the third quarter ushered in a low season for fertilizer consumption, and demand was weak. The price of phosphate ore on the cost side remains high. The current price is 975 yuan/ton (20221028). The prices of sulfur and synthetic ammonia were adjusted to a certain extent in the third quarter. Currently, prices have steadily rebounded. The current prices are 1,240 yuan/ton and 3,721 yuan/ton (20221028), respectively, up 38% and 32% from the August low, which supports the prices of phosphate fertilizer and urea. In the future, with the arrival of winter storage and later spring farming, demand for chemical fertilizers is expected to be boosted. In the PVC sector, the downstream real estate industry is sluggish, dragging down demand for PVC, and the profitability of PVC manufacturers is under pressure. The company has a total calcium carbide production capacity of 1.05 million tons through subsidiaries, has cost advantages, and is highly resilient when product prices are low.
The new materials project is progressing steadily. The 550,000 tons/year ammonia alcohol project built by the company in the Tianjiahe area of Yaojiagang Chemical Park in Yichang City and the 4×50,000 tons/year iron phosphate project to be built by Stanley Yihua are progressing steadily in 2023; the 60,000 tons/year biodegradable new materials project invested by the company's wholly-owned subsidiary is expected to be completed and put into operation by the end of the year; currently, 300,000 tons/year of iron phosphate and 200,000 tons/year of nickel sulfate projects for Bangpuihua's new materials are expected to be successfully completed and put into operation in the fourth quarter of 2023.. The production of new energy vehicles and the installed capacity of lithium iron phosphate continue to increase. Currently, the price of iron phosphate remains high. The partnership between the company and the “Ningde Times” subsidiary will further develop its phosphorus chemical enterprise resource advantages, guarantee its layout in the field of new energy materials, and is expected to open up room for growth for the company.
Investment suggestions: We expect the company's net profit to be 27.16/33.21/3851 billion yuan respectively for 2022-2024, EPS of 3.03/3.70/4.29 yuan, and corresponding PE of 5/4/3 times, respectively. Considering the company's resource endowments, we will actively lay out the new materials sector, have remarkable growth capacity, and maintain a “buy” rating.
Risk warning: Fertilizer prices have fallen, and the commissioning of new projects has fallen short of expectations.