Description of the event
On April 14, 2023, the company released its 2022 annual report and performance forecast for the first quarter of 2023. It achieved revenue of 20.713 billion yuan in 2022, an increase of 11.69% over the previous year; it achieved net profit of 2.164 billion yuan to the mother, an increase of 37.94% over the previous year. Among them, Q4 2022 achieved revenue of 4,542 billion yuan, a year-on-year increase of 47.96% and a decrease of 10.17%; realized net profit of 14 million yuan, a year-on-year decrease of 83.12% and a decrease of 97.15% over the previous year; and Guimu's net profit for 2023 Q1 is expected to be 21-260 million yuan, a decrease of 59.27% -67.10% over the same period last year.
Demand is weak in 2022 Q4, and the main business is under pressure in the short term. Product prices gradually rebounded in 2023 Q1. 2022 Q4 was affected by the epidemic and weak demand, and the company's three major businesses were under pressure in the short term. In 2022, it achieved operating income of 20.713 billion yuan, an increase of 11.69% over the previous year; net profit attributable to shareholders of listed companies was 2,164 billion yuan, an increase of 37.94% over the previous year. The company grabbed market prices for leading products such as urea, diammonium phosphate, and polyvinyl chloride in the first half of the year. On the basis of guaranteeing domestic supply, it developed domestic and international markets in an integrated manner to ensure the efficient and stable operation of production equipment, strictly control costs and expenses, and strengthen product research and development. The performance was very resilient. In 2022 Q4, the epidemic was frequent and downstream demand recovery was difficult to meet expectations. Transportation of the company's main product, PVC, was blocked, factory inventories continued to be burdened, and prices weakened. However, after experiencing fall sales for products such as diammonium phosphate, demand began to weaken, and prices were under pressure on the price side. According to Baichuan data, in Q4 2022, quarterly average prices of PVC/diammonium phosphate/urea using calcium carbide were 5905.13/ 3579.21/2584.18 yuan/ton, respectively, with a month-on-month change of -8.44/-10.73/ +4.51%. Entering 2023, after experiencing industry losses, the competitive pattern of products such as diammonium phosphate and PVC improved. The overall demand for superposition was recovering, and prices rebounded somewhat. In 2023 Q1, the quarterly average price of PVC/diammonium phosphate/urea for the calcium carbide method was 6088.59/3787.36/2682.41 yuan/ton respectively, a month-on-month change of +3.11/+5.82/ +3.80%, and the 2023 Q1 performance improved dramatically.
The fertilizer industry continues to prosper, chlor-alkali chemical production capacity has increased rationally, global food prices have continued to rise, and the tight balance between supply and demand has kept the fertilizer boom rising. In 2022, affected by various factors, international food trade was cut, and countries increased food support policies to boost demand for chemical fertilizers. At the same time, global quantitative easing policies led to a rise in the prices of commodities required for fertilizer production. Prices of nitrogen, phosphorus, potassium, and sulfur continued to rise, and fertilizer prices continued to run high. In the second half of the year, the country stepped up the legal inspection of chemical fertilizer exports, and fertilizer prices fell to a certain extent. Meanwhile, in recent years, the country has carried out supply-side reforms for industries with excess capacity, gradually removing excess capacity from the industry. New production capacity for nitrogen fertilizer and phosphate fertilizer is relatively limited, and the industry pattern is expected to continue to be optimized.
Based on the rigid demand for fertilizer in grain production, fertilizer supply is expected to be stable over the long term. The overall development trend of the domestic chlor-alkali industry continued its steady development trend in 2022, and chlor-alkali production capacity maintained rational growth. On the market side, the caustic soda market fluctuated at a high level, and the price of PVC declined markedly. The domestic chlor-alkali industry is under some pressure in 2023, but with the gradual emergence of the effects of the country's package of economic stabilization policies, the gradual restoration of the real estate market, and the gradual strengthening of new economic growth momentum, the chlor-alkali industry is also facing certain development opportunities.
Laying out new energy materials and degradable plastic projects, cooperating with strong downstream players to optimize product structures, the construction of new energy materials projects progressed steadily, opening up a second growth curve. In 2021, the subsidiary Yihua Fertilizer Industry and Ningbo Bangpu, a subsidiary of Ningde Times, formed a joint venture to establish “Bangpu Yihua” (Yihua Fertilizer Industry's shareholding ratio is 35%), which is responsible for construction projects such as iron phosphate, nickel sulfate and supporting raw materials. In October 2021, Ningde Times announced that it plans to invest 32 billion yuan to build the Bangpu Integrated Battery Materials Industrial Park project in Yichang City, Hubei Province. Among them, the total investment of the Bangpu Yihua supporting raw materials and iron phosphate project is about 10.4 billion yuan. It is expected to add 300,000 tons/year of iron phosphate precursor production capacity and 200,000 tons/year of nickel sulfate production capacity. It is expected to be put into operation before the end of 2023. After successful commissioning, the company will open up new growth space in the new energy sector. At the same time, the company cooperated with Stanley to build an iron phosphate precursor project and design 200,000 tons of iron phosphate production capacity, It is expected to be put into operation in 2024; the 550,000 ton ammonia alcohol technology reform and relocation project is expected to be put into operation before the end of 2023. After completion of the project, 460,000 tons/year of liquid ammonia and 90,000 tons/year of methanol will be added, with a by-product of about 20,000 tons/year of sulfuric acid; the PBAT project, which produces 60,000 tons of degradable materials per year, has now completed the main civil construction project. The company's new energy materials and degradable plastics projects progressed smoothly, starting a second growth curve.
Investment advice
Due to pressure on the prices of the company's main products, PVC and diammonium phosphate, the company's net profit for 2023-2025 is estimated to be 19.34, 21.74 and 2,802 billion yuan respectively, with year-on-year growth rates of -10.7%, 12.5%, and 28.8%. The 2023 and 2024 results are down 45.67% and 46.39% respectively from the previous values of 35.60 and 4,055 billion yuan. The corresponding PE is 6, 6, and 4 times, respectively. Maintain a “buy” rating.
Risk warning
(1) Project commissioning progress falls short of expectations;
(2) Prices of raw materials fluctuate greatly;
(3) The risk of changes in relevant policies;
(4) International trade risks.