The company released the third quarterly report for 2023, and the performance met expectations. Company 1-3Q Realized operating income of 21.928 billion yuan in 2023 (yoy-11.78%), net profit attributable to mother is 934 million yuan (yoy-80.98%), net profit of parent after deduction of non-profit was 897 million yuan (yoy-82.40%), sales gross profit rate of 1- 3Q23 company decreased by 23.2pct to 13.14% year-on-year, sales expenses, management expenses and R & D expenses decreased by 8.57%, 5.92% and 20.23% to 2.62, 244 and 756 million yuan respectively, and the performance met expectations. Among them, 3Q23 realized revenue of 8.318 billion yuan (yoy+10.07%, QoQ+18.18%) in a single quarter, net profit of parent was 325 million yuan (yoy-74.21%, QoQ+104.2%), and gross profit rate of 3Q23 sales decreased by 19.84pct year-on-year and increased by 1.53pct to 12.61% month-on-month. 1-3Q The main reason for the year-on-year decline in net profit of parent company in 23 is that the market price of cyclical products has dropped significantly year-on-year, and the production and sales volume also declined to varying degrees year-on-year, resulting in a significant weakening of product profitability. The main reasons for the month-on-month improvement of 3Q23 performance were that the market conditions of glyphosate, yellow phosphorus, phosphate fertilizer and other products recovered in the third quarter, the sales volume of phosphate rock increased and the price fluctuated at a high level, and the profitability of products increased.

3Q23 entered the autumn fertilizer peak season, phosphate fertilizer sales increased month-on-month, phosphate ore volume and price increased month-on-month, yellow phosphorus inventory was low, demand warmed up, price rose month-on-month, glyphosate price still operated at the bottom. 3Q23 The overall demand for glyphosate is still weak, the prices of upstream raw materials such as yellow phosphorus, liquid chlorine, acetic acid and glycine generally rise, the cost of glyphosate increases and profits narrow; the third quarter is the autumn fertilizer peak season, and the sales volume of phosphate fertilizer and phosphate rock increases month-on-month; the inventory of yellow phosphorus industry drops to a low level, the demand picks up, and the price rises in the third quarter. According to the disclosure of the company's business data announcement, the sales volume of phosphate rock, yellow phosphorus, food additives, fertilizer and glyphosate in 3Q23 was 63.42, 0.52, 4.88, 41.1 and 40,400 tons respectively, up and down 13.1%, 6.1%, 6.8%, 58% and-22% month-on-month respectively, and up and down 73.2%,-53.2%,-2.2%, 110. 9% and 14.8% year-on-year respectively; The average prices were 629, 22526, 9072, 2509 and 23152 yuan/ton respectively, up and down 8.8%, 10.1%,-10.9%,-25.2% and-1.3% month-on-month respectively, and-5.8%,-19.3%,-24.8%,-40.4% and-56.7% year-on-year respectively. Silicone demand is weak, inventory is still at a high level, prices continue to decline year-on-year, at present the industry has been in a loss state, according to Zhuochuang information silicone product data, 3Q23 average silicone price 13445 yuan/ton, month-on-month decline 7%, year-on-year decline 32%.

The new materials business of the Company maintained a healthy development trend and contributed to the main profits of the Company in the first three quarters. In the future, it will devote itself to the new materials business such as phosphorus-based, silicon-based, sulfur-based and microelectronic materials, and accelerate the transformation and upgrading to a technology-based green chemical new material enterprise. The key projects of the company have been steadily promoted. According to the disclosure of the semi-annual report of the company, Xingfu Electronics, a holding subsidiary of the company, has built a production capacity of 183,000 tons of wet electronic chemicals at present, and is making every effort to promote the construction of Hubei electronic chemicals special zone, 20,000 tons of electronic-grade ammonia water co-production of 10,000 tons of electronic-grade ammonia, etc.; Hubei Xingrui 550 tons organic silicon microcapsule pilot production line has been completed in March 2023, and has realized batch sales at present; The company has completed 800 tons pilot test of phosphating agent project and is carrying out 5000 tons industrial plant design. The company's 5000 cubic meters of aerogel felt project, the holding subsidiary Hubei Xingyou 200,000 tons battery-grade iron phosphate project Phase I project, the joint-stock company Hubei Youxing 300,000 tons lithium iron phosphate Phase I project, and the lithium phosphorus fluoride industry 100,000 tons battery-grade lithium dihydrogen phosphate project will be completed and put into operation within the year. By the end of 3Q23, the Company's projects under construction increased by CNY 2.629 billion to CNY 5.095 billion compared with the end of 2022.

Investment analysis opinion: Affected by weak demand, the prices and profits of glyphosate, organic silicon and other cyclical products have fallen sharply. However, since the end of 2Q23, the phosphorus chemical industry has recovered and the prices have stabilized and rebounded. At the same time, considering that the company will devote itself to expanding and strengthening the new materials business such as phosphorus-based materials, silicon-based materials, sulfur-based materials and microelectronic materials in the future, the company's industrial chain and technological advantages are leading, the road of transformation and upgrading is gradually spreading, and the profit proportion of the new materials business segment is gradually increasing. Therefore, we maintain the company's 2023-2025 net profit forecast of 1.420 billion yuan, 1.765 billion yuan, 2.195 billion yuan, corresponding EPS of 1.28 yuan, 1.59 yuan, 1.97 yuan, corresponding to the current PE of 15X, 12X, 10X, maintain the overweight rating.

Risk warning: 1. The prices of phosphate rock, organic silicon, glyphosate, yellow phosphorus, phosphorus fertilizer, dimethyl sulfoxide and other products continue to drop sharply;2. The commissioning of new projects such as electronic chemicals is lower than expected;3. Short-term shutdown caused by safety supervision and environmental protection inspection.