Event: The company released the third quarterly report of 2023, realizing revenue of 13.703 billion yuan in the first three quarters,-15.26% year-on-year; realizing net profit of 390 million yuan,-81.87% year-on-year. Among them, Q3 realized revenue of 4.607 billion yuan, year-on-year/month-on-month-8.87%/+5.25%; realized net profit of 138 million yuan, year-on-year/month-on-month-71.66%/+326%.

In the third quarter, the performance of the company's main products showed phased differentiation. From June to July, it was dragged down by demand. PVC and ammonium phosphate industries accumulated obviously. The price of coal and oil superimposed on upstream resources fell at a high level and then the cost support weakened. The product price declined, and the profit per ton reached the bottom. Since the middle and early August, under the demand release in autumn fertilizer season + export price boost, phosphate fertilizer prices have stabilized upward, urea is also driven by international market prices and then upward. According to Baichuan Yingfu and wind data, the average price of PVC/caustic soda by Q3 urea/diammonium phosphate/calcium carbide method is 2470/3441/6055/3528 yuan/ton respectively,+5.1%/-4.1%/+2.5%/+4.9% month-on-month respectively. Under this influence, the profitability of the company shows a continuous recovery trend. Q3 Company realized gross profit margin/net sales margin of 12.64%/5.65%, month-on-month +2.54pct/+3.72pct respectively.

Looking forward to the future, pay attention to the profitability improvement of ammonium phosphate in the fourth quarter. On the one hand, the export price of diammonium phosphate is good at present. According to Baichuan Yingfu statistics, as of October 27, the CFR quotation of diammonium phosphate in India is 594.5 US dollars/ton, up about 150 US dollars/ton compared with the low point in July. In September, domestic diammonium phosphate exports were 362,000 tons,+10% month-on-month; the average price was US $474/ton,+7.8% month-on-month. With the release of replenishment demand in India, Bangladesh and other Southeast Asian regions, it is expected that ammonium phosphate export demand and profitability will improve. On the other hand, the winter storage price of fertilizer this year is about to be announced, and the wait-and-see mood of dealers is expected to be relieved. Meanwhile, the demand is stable and the inventory is low, and there may be room for price rise. Third, the winter break of phosphate rock industry at the end of the year is approaching, and it is expected that phosphate rock will start to decline and prices are expected to rise, further supporting the cost of ammonium phosphate.

Industrial transformation and upgrading have been steadily promoted. The project under construction of the company is progressing steadily. The 550,000 tons ammonia alcohol project in Tianjiahe Park is about to be put into operation. The 300,000 tons iron phosphate +200,000 tons nickel sulfate project of Bangpu Yihua is expected to be completed and put into trial operation before the end of the year. The mining license of 1.5 million tons of Jiangjiadun phosphate mine with indirect participation is being processed. In addition, in August this year, the company announced that it plans to invest in the construction of 200,000 tons of refined phosphoric acid +650,000 tons of ammonium phosphate relocation and upgrading transformation, which can form effective synergy with ammonia alcohol project while completing technology and product upgrading and transformation. We are optimistic about the transformation and upgrading of medium-and long-term companies to new energy, new materials and other industries relying on their rich resource advantages.

Investment suggestion: According to the performance of the company in the first three quarters of 2023 and the price difference of current products, we adjusted the previous net profit forecast of the company from 2023 to 2025 from CNY 15.21/18.06/21.73 billion to CNY 6.35/15.50/19.97 billion, corresponding to the current PE of 16.4/6.7/5.2x respectively. With reference to the valuation of comparable companies, we give the company 10 times the target PE in 2024, corresponding to the target price of 14.70 yuan, and maintain the "strong push" rating.

Risk hint: project progress is not as expected; international oil prices fluctuate sharply; safety and environmental protection policy changes.