Description of the event
The company released its 2023 three-quarter report. In the first three quarters, it achieved operating income of 2,881 billion yuan (+19.8% year-on-year), net profit attributable to shareholders of listed companies of 994 million yuan (-34.5% year-on-year), and non-net profit withheld by shareholders of listed companies of 1,006 billion yuan (-33.4% year-on-year). Among them, the third quarter achieved revenue of 869 million yuan in a single quarter (+33.8%, -25.5% month-on-month), net profit attributable to shareholders of listed companies of 278 million yuan (-32.2% yoy, -27.0%), and realized non-net profit withheld by shareholders of listed companies of 282 million yuan (-32.5% yoy, -27.3% month-on-month).
Incident comments
Potassium chloride production was stable. The decline in market prices in the third quarter and the steady return to sales volume led to a month-on-month decline in the company's performance.
The company's production and sales of potassium chloride in the first three quarters were 1.177 million tons and 1.19 million tons, respectively, of which the production and sales volume for the third quarter was 415,000 tons (-6.6% month-on-month) and 424,000 tons (-15.5% month-on-month), respectively. The main reason for the month-on-month decline in sales in the third quarter was that the company accumulated in the first quarter (318,000 tons in the first quarter, sales volume 265,000 tons) and some potassium chloride was sold in the second quarter (444,000 tons in the second quarter, sales volume 501,000 tons), which made the sales base for the second quarter high; the reason for the decline in production may have been the company's commissioning of new production lines, which slightly affected the original production line. According to Bloomberg statistics, the average price of potassium chloride in Southeast Asia in the third quarter of 2023 was 338 US dollars/ton, -22.6% compared to the second quarter; according to Baichuan Yingfu statistics, the average domestic potassium chloride price in the third quarter of 2023 was 2,526 yuan/ton, -10.5% compared to the second quarter. The decline in the market price of potassium chloride and the steady recovery of the company's sales volume contributed to a month-on-month decline in the company's performance in the third quarter.
The second million-ton potassium chloride project progressed smoothly. The peak production capacity in a single day has now exceeded the daily production capacity of 3 million tons/year.
The company's second million-ton potassium chloride project progressed smoothly. In the third quarter, the No. 2 main inclined well of the company's second million-ton potash fertilizer project was completed, entering the subsequent installation and commissioning stage of belt transportation equipment. On October 27, 2023, on the basis of the company's 2 million tons/year production line in the company's Dongtai mining area, the company's Dongtai mining area in Laos reached 9116 tons of potash fertilizer in a single day, reaching the design capacity and further exceeding the single-day production standard of 3 million tons/year.
The company's production capacity is built quickly, cost advantages are excellent, and growth is remarkable. It is difficult to produce potash fertilizer overseas. According to statistics from the China Inorganic Salt Association, there are a total of 34 potash fertilizer projects that Chinese enterprises have sought and contacted overseas, distributed in 12 countries, but at present only 2 enterprises have achieved stable large-scale production, not one out of ten. The company has strong execution. The first million-ton project took 17 months, and the second million-ton project took 9 months. The speed of production capacity construction is significantly ahead of domestic and foreign counterparts. Compared to peers who go overseas to find potassium, the company's potassium chloride products have a cost advantage of about 300 to 400 yuan/ton, and the cost advantage is excellent. The company plans to achieve a production capacity of 5 million tons/year of potassium chloride by 2025, including the current production capacity of 2 million tons/year, the production capacity under construction of 1 million tons/year, and the proposed production capacity of 2 million tons/year. In the future, the production capacity will be expanded to 7 million to 10 million tons/year according to market demand. As production capacity is steadily built and put into operation, the company is expected to become a world-class potash fertilizer supplier with remarkable growth.
Maintain a “buy” rating. The company focuses on potash mining, potash fertilizer production and sales, and excels among Chinese companies that go overseas to find potassium. The potash industry has an oligopolistic pattern where supply is highly concentrated, and future supply increases are limited. The company has two major highlights: high execution and cost advantages. The company rapidly expands production capacity with the former, and occupies a position on the left side of the industry's cost curve with the latter. In the future, as the company's production capacity is invested one after another, the performance center is expected to rise. The estimated net profit attributable to the company in 2023/2024/2025 is: 1,392/22.83/3.135 billion yuan, respectively, maintaining the “buy” rating.
Risk warning
1. Risk of potash price fluctuations;
2. The company's production capacity investment progress fell short of expectations.