Incidents:
On October 28, Xingfa Group released its 2023 three-quarter report: in the first three quarters of 2023, the company achieved operating income of 21.928 billion yuan, -11.78% year-on-year; realized net profit of 934 million yuan, -80.98%; and the weighted average return on net assets was 4.78%, a decrease of 24.81 percentage points over the previous year. The gross profit margin of sales was 13.14%, a decrease of 23.20 percentage points from the previous year; the net profit margin of sales was 4.46%, a decrease of 18.97 percentage points from the previous year.
Among them, 2023Q3 achieved revenue of 8.318 billion yuan, +10.07% year-on-month and +18.18%; realized net profit of 325 million yuan, -74.21% year-on-year, +104.20%; and average return on net assets was 1.81%, a decrease of 5.41 percentage points over the previous year and an increase of 1.03 percentage points over the previous year. The gross profit margin of sales was 12.61%, a decrease of 19.84 percentage points from the previous year and an increase of 1.53 percentage points from the previous year; the net sales profit margin was 4.18%, a decrease of 14.96 percentage points from the previous year, and an increase of 1.86 percentage points from the previous year.
Investment highlights:
The phosphorus chemical market is picking up. The profit of 2023Q3 increased significantly month-on-month in 2023Q3. The company achieved revenue of 8.318 billion yuan, +761 million yuan, +1,279 million yuan over the previous year; realized net profit of 325 million yuan, -936 million yuan, and +166 million yuan month-on-month.
Among them, 2023Q3 achieved gross profit of 1,049 billion yuan, year-on-year -1,403 million yuan, and +269 million yuan month-on-month. Since the third quarter, market conditions for products such as glyphosate, yellow phosphorus, and phosphate fertilizer have picked up, and product profitability has increased, leading to a marked improvement in the company's operating performance compared to the second quarter. In the third quarter, the company's phosphate ore sales volume was 634,200 tons, +73.18%, +13.09%, the average sales price was 629 yuan/ton, -5.82%, +8.80%; the sales volume of yellow phosphorus was 0.52 million tons, -53.15%, +6.12%, the average sales price was 22,526 yuan/ton, -19.32%, +10.12% month on month; glyphosate sales volume was 404,000 tons, +14.77%, -22.01% /ton, YoY- 56.72%, -1.28% month-on-month; fertilizer sales volume was 411,000 tons, +110.88%, +58.02% month-on-month, average sales price 2509 yuan/ton, -40.39% year-on-year, -25.16% month-on-month. At the same time, the company's wet electronic chemicals, food additives and other growing product markets maintained a healthy development trend.
The sales volume of 2023Q3 wet electronic chemicals was 19,300 tons, -3.02% yoy, -12.27%, the average sales price was 9589 yuan/ton, +10.53%, +18.23%; the sales volume of food additives was 48,800 tons, -2.20%, +6.78%, the average sales price was 9072 yuan/ton, -24.82% yoy, -10.87%.
Asset impairment losses for 2023Q3 companies were $0.07 billion, up $97 million year over year, +$0.24 million; income tax was $146 million, year over year — $206 million, +100 million yuan. In terms of period expenses, the sales/management/R&D/financial expenses of 2023Q3 were 1.19/1.02/2.37/70 million yuan respectively, which was +0.29/+0.07/-0.55/+0.1 billion yuan over the same period, and +0.08/+0.30/-0.31/-0.1 billion yuan over the previous year. In the first three quarters of 2023, the net cash flow from the company's operating activities was 869 million yuan, a year-on-year decrease of 85.82%, mainly due to a decrease in cash inflows from sales of products, etc. In the first three quarters of 2023, the company received 13.817 billion yuan in cash from sales of goods and provision of services, a year on year - 4.311 billion yuan; tax rebates received were 330 million yuan, compared with a year of 434 million yuan.
Since the fourth quarter, demand for winter storage of phosphate fertilizer has started one after another, the prosperity of the phosphorus chemical industry has maintained, and phosphate ore prices are still fluctuating at a high level. According to data from Wind and Zhuochuang, as of October 31, 2023, the price of phosphate ore was 972 yuan/ton, +1.78% from the end of September; the price of yellow phosphorus was 25,765 yuan/ton, +3.61% at the end of September; the price of glyphosate was 29.104 million tons, -0.68% from the end of September; as of October 30, 2023, the price of monoammonium phosphate was 3,200 yuan/ton, +4.92% at the end of September. According to the 2023 mid-year report, the company has a production capacity of 5.85 million tons of phosphate ore and is expected to benefit from the integration of the phosphorus chemical industry chain.
Multiple projects are progressing in an orderly manner. New materials and new energy are expected to expand further by mid-2023. The company has a phosphate ore production capacity of 5.85 million tons/year, fine phosphate production capacity of more than 200,000 tons, glyphosate raw drug production capacity of 230,000 tons, formulation production capacity 75,000 tons, silicone monomer production capacity of 360,000 tons, and a downstream production capacity of 150,000 tons of silicone rubber, 56,000 tons of silicone oil, and 2,500 tons of acid crosslinking agent production capacity, 200,000 tons of ammonium phosphate, 800,000 tons of purified phosphorus Acid production capacity 100,000 tons, wet electronic chemicals production capacity 183,000 tons, etc. A number of key projects under construction of the company are progressing steadily. (1) Electronic chemicals: Projects such as 20,000 tons/year of electronic grade ammonia and 10,000 tons/year of electronic grade ammonia in Hubei Electronic Chemicals Zone are progressing steadily; construction of 40,000 tons/year of ultra-high purity electronic chemicals in the Shanghai Electronic Chemicals Zone has begun. (2) New silicone material projects: 80,000 tons of special silicone rubber, 2,200 tons of silicone microcapsules, 5,000 cubic meters of new silicon-based materials projects are under construction. (3) New energy industry:
The first phase of the 200,000 tons/year battery-grade ferric phosphate project of Xingyou Company was completed and put into operation; the shareholding company Hubei Youxing's 300,000 tons/year lithium iron phosphate phase I project and the 100,000 tons/year battery-grade lithium dihydrogen phosphate project of the phosphorite lithium industry will be completed and put into operation throughout the year. As the company's projects under construction are put into operation one after another, the share of new materials and new energy businesses in the company's revenue and profit will further increase, which will help the company enrich its product structure, enhance its ability to withstand risks, and transform and upgrade to a high value-added industry.
Significant resource advantages and strong cost control capabilities
The company's phosphate ore resource reserves and production capacity rank among the highest in the industry. According to the 2023 mid-year report, the company has mining rights, phosphate ore reserves of about 412 million tons, phosphate ore design production capacity of 5.85 million tons/year, holds 70% of shares in Jingzhou Jinghua (has a phosphate exploration reserve of 289 million tons, currently in the prospecting stage), and holds 50% of the shares in Qiaogou Mining (with a phosphate exploration reserve of 188 million tons, currently in the exploration and mining stage), holding 50% of the shares in Qiaogou Mining (with a phosphate exploration reserve of 188 million tons, currently in the exploration and mining stage), holding 50% of the shares in Qiaogou Mining (with a phosphate exploration reserve of 188 million tons, currently in the exploration and mining stage) The volume is 315 million tons, and mining licenses have been obtained. (Currently in the construction phase of the mining project) 26% equity. The company made full use of the rich hydropower resources and good lighting resources in the Xingshan region to build 32 hydropower plants with a total installed capacity of 178,400 kilowatts; 13 distributed photovoltaic power plants with a total installed capacity of 1,828 kilowatts. Abundant green power resources can provide low-cost and stable electricity supply guarantees for chemical production in the Xingshan region, and also seek more favorable space for the company to participate in carbon trading in the “double carbon” context in the future.
Profit forecasts and investment ratings
Taking into account the company's operating conditions in the first three quarters and the changing trends in product and raw material prices, we made appropriate adjustments to the company's performance. The company's net profit for 2023-2025 is estimated to be 13.78, 20.14, and 2,553 billion yuan respectively, corresponding to 15.85, 10.85, and 8.56 times PE, respectively. The company is a leading phosphorous chemical enterprise. It has outstanding advantages in phosphate ore resources, and new material projects continue to advance. It is optimistic about the company's long-term development and maintains a “buy” rating.
Risk warning
Risk of macroeconomic fluctuations; production capacity investment falls short of expectations; risk of fluctuations in product prices; risk of fluctuations in raw material prices; future demand declines; progress of new projects falls short of expectations.