In 2021, the company achieved operating income and net profit of 185.57 billion yuan to the mother, +34% and +1255% compared with the same period last year.
The company has two major industrial chains, fertilizer and chlor-alkali. Resource advantages are remarkable. Integration highlights cost advantages. In the context of rising agricultural products and oil prices, the prosperity of major products has increased, and profitability is expected to increase; the company lays out new material projects such as new energy materials and degradable plastics, and optimizes the product structure through strong cooperation with downstream.
We believe that fertilizer and chlor-alkali are still very popular. The company's net profit forecast for 2022-2023 was raised to 27/3.3 billion yuan (the original forecast was 26.3 billion yuan), and the net profit forecast for 2024 was 3.6 billion yuan. The corresponding EPS forecast for 2022-2024 was 3.03/3.70/4.05 yuan respectively. The current stock price corresponds to 6.2/5.1/4.7 times PE, respectively. According to 10-fold PE in 2022, the target price was raised to 30 yuan to maintain the “buy” rating.
The popularity of the main products has increased, and the company's performance has increased dramatically. The company has formed two core businesses, fertilizer and chlor-alkali chemicals. Among them, the market competitiveness of diammonium phosphate and vaporea leads the industry. The profit levels of polyvinyl chloride and caustic soda devices are currently at the middle and upper reaches of the same domestic industry. The company currently has a production capacity of 1.26 million tons of diammonium phosphate; a production capacity of 1.56 million tons of urea and a production capacity of 840,000 tons of polyvinyl chloride. It has fully benefited from the increase in the prosperity of the fertilizer and caustic soda industry last year, which has achieved a sharp increase in profit. Since 2022, the company's main products have continued their boom, achieving revenue/net profit of 55.640 billion yuan in the first quarter, +55%/201% over the same period last year.
Benefiting from the agricultural product boom cycle, the fertilizer boom will continue. As global agricultural product prices continue to strengthen, driving up agricultural product sentiment, the prices of the company's main products, diammonium phosphate and urea, have risen from 3,780 and 2,460 yuan/ton at the beginning of the year to 4160 and 3170 yuan/ton respectively, continuing the upward trend. Since the company is self-sufficient in some of its main raw materials, it has fully benefited from the increase in performance brought about by rising prices of chemical fertilizer products. Currently, due to the impact of the situation in Russia and Ukraine, the global fertilizer supply chain has been affected and impacted to a certain extent. Combined with strong demand for planting, we think there is still room for fertilizer prices to rise further.
The popularity of chlor-alkali has picked up, and the cost advantage of integration has been shown. In October 2021, the price of calcium carbide hit a new high in ten years. The highest price in East China was close to 8,000 yuan/ton; although the price of calcium carbide fell sharply from higher levels since 2022, it is still higher than the historical average price level. In the context of the dual energy control policy combined with the carbon neutral carbon peak policy, calcium carbide, as a highly polluting and energy-intensive industry, power limits and production limits will further become normalized. The decline in supply and continued price increases will directly affect the profits and stable production of outsourced calcium carbide PVC companies, and integrated calcium carbide synthesis PVC companies are expected to benefit. The company has calcium carbide support from subsidiaries in Inner Mongolia, Qinghai, and Xinjiang. The popularity of its main products has increased recently, and profitability is expected to increase.
New materials projects are progressing rapidly, and strong cooperation is being made to optimize the product structure. The company focuses on products such as iron phosphate/lithium iron phosphate, photoinitiators, and fluorine-containing materials in the fields of lithium batteries, electronic chemicals, and degradable plastics.
With the implementation of new projects, the company's product structure has been further enriched. In particular, cooperation with some leading downstream companies will be of great help to successfully introduce the company's products into the supply chain in the future and maintain a stable profit level.
Risk factors: 1) the price of the company's raw materials fluctuates greatly; 2) the price of the company's products fluctuates greatly; 3) the risk of insufficient utilization of the company's production capacity; 4) the risk that downstream demand falls short of expectations; 5) the company's new project construction progress is lower than expected;
Investment suggestions: The company has two major industrial chains, fertilizer and chlor-alkali. Resource advantages are remarkable. Integration highlights cost advantages. In the context of rising agricultural products and oil prices, the company's main products are becoming more popular and profitability is expected to increase; the company lays out new material projects such as new energy materials and degradable plastics, and optimizes the product structure through strong cooperation with downstream. We believe that fertilizer and chlor-alkali are still very popular. The company's net profit forecast for 2022-2023 was raised to 27/3.3 billion yuan (the original forecast was 26.3 billion yuan), and the net profit forecast for 2024 was 3.6 billion yuan. The corresponding EPS forecast for 2022-2024 was 3.03/3.70/4.05 yuan respectively. The current stock price corresponds to 6.2/5.1/4.7 times PE. According to 10 times PE in 2022 (reference to Wind's phosphorus chemical index corresponding to 10xPE in 2022, giving the company 10xPE in 2022), the target price was raised to 30 yuan to maintain the “buy” rating.