Event: On March 31, the company released its 2022 annual report. In 2022, the company achieved revenue of 3.447 billion yuan, an increase of 36.26% over the previous year; achieved net profit of 758 million yuan, an increase of 106.05% over the previous year; and achieved net profit of 771 million yuan after deduction, an increase of 124.51% over the previous year. Among them, 2022Q4 achieved revenue of 992 million yuan in a single quarter, an increase of 15.49% over the previous year and an increase of 14.14% over the previous quarter; it achieved net profit of 169 million yuan, an increase of 8.09% over the previous year, and a decrease of 22.94% over the previous quarter.

Comment:

Prices of phosphate ore and phosphorus chemical products have soared, and the company's performance increased in 2022. Benefiting from a sharp rise in the prices of phosphate ore and phosphate chemical products such as calcium dihydrogen phosphate, monoammonium phosphate, and phosphoric acid, the company's performance in 2022 saw a significant increase.

In 2022, the company's phosphate ore, calcium dihydrogen phosphate and monoammonium phosphate business revenue increased by 41.8%, 51.3% and 18.8%, respectively; the average unit sales price of products increased 123.1%, 48.6% and 36.8%, respectively. In addition, the company made appropriate production adjustments based on the profitability of products from different links in the industrial chain. In 2022, the company's phosphoric acid product shipments increased markedly, and phosphoric acid product revenue surged 248.7% year-on-year. At the same time, by relying on the company's huge and sufficient phosphate resource reserves and phosphate ore production capacity, the company can also effectively control its own production costs while product prices have increased dramatically, thus achieving higher profitability. In 2022, the company's gross margin reached 44.93%, a sharp increase of 16.56 pct over the previous year. Among them, the gross margins of phosphate ore, calcium dihydrogen phosphate, and monoammonium phosphate businesses increased 3.80 pct, 20.13 pct, and 12.07 pct, respectively. In terms of expenses and expense rates, due to the increase in equity incentive expenses and employee remuneration, the company's management expenses increased 79.10% year-on-year in 2022, and the management expense ratio increased 1.54 pct to 6.46% year-on-year. Due to the increase in R&D projects related to new products and technologies, the company's R&D expenses increased 184.40% year on year in 2022, and the R&D cost rate increased 1.66 pct to 3.19% year on year. At the same time, the number of R&D personnel in the company also increased markedly in 2022, an increase of 49.18% over the previous year to 182. In 2022, the company's sales expense ratio and financial expense ratio increased by 0.14 pct and 0.56 pct, respectively. Furthermore, due to the centralized calculation of 22Q4 expenses, under a situation where revenue increased month-on-month in a single quarter and gross profit was basically flat month-on-month, the company's net profit for the 22Q4 single quarter declined month-on-month. The 22Q4 company's sales, management, R&D, and financial expenses increased 116%, 11.6%, 149%, and 181%, respectively.

The release of iron phosphate and Guangxi projects is expected, with plans to increase phosphate ore by 3.53 billion yuan to expand phosphate ore and purify phosphoric acid production capacity. In 2022, the 1.5 million tons/year mineral processing plant in the company's previous convertible bond fund-raising project, the 300,000 tons/year pyrite acid production project, the front-end wet phosphate production line in the previous fixed increase project “200,000 tons/year and a half water-dihydrate wet phosphoric acid and deep processing project” (built at the Guangxi base), and the 100,000 tons/year iron phosphate project invested by the company's own capital were completed and put into use one after another. Meanwhile, the construction of the back-end calcium dihydrogen phosphate and purified phosphoric acid production line in the “200,000 tons/year half-water-dihydrate wet phosphoric acid and deep processing project” is expected to be completed by the end of June 2023. On the one hand, the completion of the above projects has further increased the production capacity and variety of the company's terminal products; on the other hand, it has further increased the company's upstream raw material self-sufficiency. We expect that the release of the iron phosphate project and the Guangxi project will be the main source of increase in the company's performance in 2023. In addition, the company plans to raise additional capital of 3.53 billion yuan for the construction, supplementary working capital and repayment of bank loans for projects such as “comprehensive utilization of medium- and low-grade phosphate ore to produce 120,000 tons/year of food-grade purified phosphoric acid”, “100,000 tons/year food-grade purified phosphoric acid project”, and “Jigongling Phosphate Mine's new 2.5 million tons/year mining project”. The construction of this planned additional investment project will further increase the company's production capacity scale and competitiveness in the field of wet purification of phosphoric acid. At the same time, it will also once again enhance the company's production and self-supply capacity in the upstream phosphate terminal.

Profit forecasts, valuations and ratings: Benefiting from a sharp rise in the prices of phosphate ore and related phosphorus chemical products, the company's performance increased significantly in 2022. However, due to a combination of factors, the construction and release progress of the company's Guangxi project and iron phosphate project was delayed, and the corresponding performance contribution was slightly lower than previously anticipated. Therefore, considering the delay in the release of production capacity for related new projects, we lowered the company's 2023-2024 profit forecast and added the 2025 profit forecast. The company's net profit for 2023-2025 is estimated to be 12.45 (down 15.4%) /16.31 (down 25.9%)/2,033 billion yuan respectively. The company has a complete distribution of lithium fluorophosphate resources, and has a large-scale production capacity layout for both new energy materials and differentiated phosphorus chemical products. Along with the gradual release of new projects, the company's performance is expected to grow rapidly over the long term, maintaining the company's “buy” rating.

Risk warning: fluctuating prices of products and raw materials, production capacity construction falling short of expectations, product verification risks, customer imports falling short of expectations, safety and environmental production risks.