Report guide

On October 27, Xingfa Group released its report for the third quarter of 2023. The company achieved revenue of 21,928 billion yuan in the first three quarters, a year-on-year decrease of 11.78%, a year-on-year net profit of 934 million yuan, a year-on-year decrease of 80.98%, and net profit of 879 million yuan after deduction of net profit of 879 million yuan, a year-on-year decrease of 82.40%. Among them, in the 2023Q3 quarter, the company achieved revenue of 8.318 billion yuan, a year-on-year increase of 10.07%, an increase of 18.18% over the previous year, net profit of 325 million yuan, a year-on-year decrease of 74.21%, an increase of 104.20% over the previous year, and net profit of 330 million yuan after deducting non-return to the mother, a year-on-year decrease of 74.42%, an increase of 140.62% over the previous year. The company's performance is in line with expectations.

Key points of investment

The profit of cyclical products improved month-on-month under pressure. The increase in the production and sales of growth products was obvious. The sharp decline in the company's net profit year-on-year was due to a large decline in product prices. The month-on-month increase was mainly due to the recent recovery in prices of most cyclical products. According to Baichuan Yingfu data, in the first three quarters of 2023, the average market price of cyclical products such as glyphosate/silicone/yellow phosphorus/monoammonium phosphate/ammonium phosphate/diammonium phosphate was 33638.97/15064.08/25057.79/2980.21/3595.76 yuan/ton, year-on-year difference -46.01%/-24.29%/-14.33%/-3.57%; 2023Q3 glyphosate/silicone/yellow phosphorus/monoammonium phosphate/diammonium phosphate was 303.3832/ 13631.25/24304.47/2778.50/3446.38 yuan/ton, year-on-year differences -46.78%/-31.56%/-21.34%/-20.97%/-14.04%, respectively, 17.53%/-7.83%/11.96%/-0.27%/-2.99%, the profitability of low-priced products weakened sharply, and the company's year-on-year performance was affected, but improved month-on-month; at the same time, production and sales of the company's growth products increased significantly, wet electronic chemicals, and specialty chemicals in the first three quarters Production reached 6.49 and 202,100 tons, respectively, up 41.70% and 21.45% year on year, and sales volume reached 62,400 tons and 198,800 tons respectively, up 18.41% and 15.51% year on year. The profit level of current cycle products is low, but the company has many future planning projects for growth products, and is optimistic about the company's future performance growth.

The domestic phosphorus chemical industry leader, and the entire industry chain layout highlights the collaborative advantage of the company as the leader in the domestic phosphorus chemical industry, continuously improving the comprehensive utilization of by-products and forming a phosphorus and silicon recycling industry chain. At the same time, the company has sufficient phosphate resource reserves. Currently, its own mining rights have reserves of about 412 million tons of phosphate resources. In addition, it also holds 70% of the shares in Jinghua in Jingzhou and 50% of the shares in Qiaogou Mining. Yuan'an Jixing, a subsidiary that holds 55% of shares, holds 26% of the shares in Yi'an Industrial. The total share of phosphate ore equity reserves reached 790 million tons, which can meet the company's production needs over a long period of time; in addition, the total installed capacity of the company's own hydropower stations is about 178,400 kilowatts, and the cost of its own hydropower is about 0.33 yuan/kilowatt-hour, compared to 0.33 yuan/kilowatt-hour Buying electricity is 40% cheaper. By continuously improving the upstream and downstream integrated industrial chain, the company has built the industry's unique industrial chain of “mine electrification”, “silicon salt collaboration” and “mineral fertilizer integration”. It has excellent cost control capabilities and great potential for future development.

Steadily promote the construction of the new materials sector and create new profitable growth points. The company combines its advantages and conditions to actively develop high-value-added fine chemicals. It has now built a wet electronic chemical production capacity of 183,000 tons/year; currently 20,000 tons/year of electronic-grade ammonia, 10,000 tons/year of electronic-grade ammonia, 80,000 tons/year of special silicone rubber, 2200 tons/year of silicone microcapsules, 5,000 m3/year of new silicon-based materials such as aerogels, and 100,000 tons/year of battery-grade lithium dihydrogen phosphate are progressing steadily。 With the rapid development of emerging industries such as display panels, semiconductors, and solar cells in China, domestic demand for wet electronic chemicals has increased dramatically. According to data from the China Business Industry Research Institute, China's demand for wet electronic chemicals in 2016 was 442,200 tons, and is expected to reach 1,7912 million tons in 2025, with a compound annual growth rate of 17%. At the same time, the company is actively deploying microcapsules, lithium batteries, etc., and products such as liquid encapsulants are already in the testing stage; we are optimistic about the company's layout in the fine chemicals field. As the production capacity of the company's new materials sector increases, profits in the new materials sector will continue to grow.

Profit forecasting and valuation

Due to the decline in profitability of cyclical products, the company's performance forecast was lowered; the company's operating income for 2023-2025 is expected to be 257.42/292.44/30.431 billion yuan, and the company's net profit is 13.78/21.78/2,465 billion yuan respectively; corresponding to EPS 1.24/1.96/2.22 yuan, corresponding to PE, 15.75/9.97/8.80 times, respectively. The company is a leading company in the phosphorus chemical sector, and is expected to invest vigorously in growth product projects in the future, optimistic about the company's growth and maintenance “Buy” rating.

Risk warning

Risk of production capacity investment falling short of expectations; risk of large fluctuations in product prices; risk of new product development; risk of safety and environmental protection; risk of policy changes, etc.