2022 and 1Q23 performance meet market expectations

Sirte achieved revenue of 4.884 billion yuan in 2022, an increase of 22.4% over the same period last year, and its net profit was 531 million yuan, corresponding to 0.62 yuan per share, an increase of 16.2% over the same period last year, in line with market expectations. The net cash flow of operating activities was 998 million yuan, an increase of 44.45 times over the same period last year.

In 2022, the revenue of three-yuan compound fertilizer increased by 28.1% to 2.31 billion yuan compared with the same period last year, of which sales increased by 3.3% to 783000 tons. Driven by the rise in the price of raw materials, the average price rose 24% to 2955 yuan / ton. In 2022, the gross profit margin of compound fertilizer was 579 yuan / ton, which was basically the same as the same period last year. However, due to the rise in the price of compound fertilizer, the gross profit margin fell by 4.43ppt to 19.61%. In 2022, revenue from monoammonium phosphate increased 37% year-on-year to 1.956 billion yuan, of which sales fell 3.3% year-on-year to 567700 tons, and the average price rose 42% to 3446 yuan / ton, mainly due to rising raw material prices and export monoammonium phosphate prices. Affected by the rise in raw material prices, gross profit margin fell 4.82ppt to 23.86% year on year. In 2022, the revenue of mineral products reached 313 million yuan, an increase of 48.7% over the same period last year, of which 781100 tons of phosphate rock were sold. Thanks to the rise in phosphate ore prices, the gross profit margin of mineral products rose 13.8ppt to 46.4% year on year.

1Q23 achieved operating income of 884 million yuan, a decrease of 38.4% and 30.3% compared with the previous month, and a net profit of 92 million yuan, with a change of-40.7% and 238.8% compared with the previous month, which is in line with market expectations.

Trend of development

The price of phosphate ore remains high, and the company's phosphate mineral is expected to continue to expand and strengthen its cost advantage. According to Baichuan Information, the price of phosphate rock in Guizhou and Hubei is currently between 1050 and 1150 yuan / ton, which is at a historically high position. Up to now, Guizhou Road Invention Niwan Phosphate Mine, a wholly owned subsidiary of the company, has a mining scale of 800,000 tons / year, and the mined phosphate rock is mainly supplied by the company for phosphate fertilizer production, and part of the phosphate ore is sold to the outside world. at the same time, Yongwen phosphate rock 3 million / annual production capacity (phosphorus comprehensive grade of more than 30%) is under construction. We believe that with the production of supporting projects for new upstream resources such as phosphate rock and pyrite, the company's industrial chain will be further improved, and the profitability of phosphate fertilizer, compound fertilizer and other products is expected to be further enhanced.

Develop fine phosphorus chemical industry and continue to extend the phosphorus industry chain. Relying on Guizhou Lufa Phosphate Mine Resources, a wholly-owned subsidiary, and taking Guizhou Silt New Energy Materials Company as the platform, the company plans to enter the field of new energy chemical materials production. 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 high-grade phosphate rock resources, and promote the company's long-term and stable development.

Profit forecast and valuation

Due to the high price of raw materials and weak demand for compound fertilizer, we lowered our profit forecast for 2023 by 34% to 414 million yuan, and introduced a profit forecast of 458 million yuan for 2024. The current share price corresponds to 15.2 times 2023 and 13.8 times 2024 earnings. Maintain the "outperform industry" rating, but as a result of the lower earnings forecast, we cut our target price by 10% to 8.6, corresponding to 17.7 times 2023 and 16 times 2024 earnings, which is 16.4% upside from the current share price.

Risk

The price of phosphate rock has dropped sharply, the sales volume of compound fertilizer is not as expected, and the progress of phosphate rock production is not as expected.