Incidents:
On October 31, Patan Co., Ltd. released its 2023 three-quarter report: in the first three quarters of 2023, the company achieved operating income of 2,515 billion yuan, +19.57% year-on-year; realized net profit of 191 million yuan, +130.09%; and the weighted average return on net assets was 8.39%, an increase of 4.44 percentage points over the previous year. Gross profit margin was 20.83%, up 6.03 percentage points year on year; net sales profit margin was 7.63%, up 3.67 percentage points year on year.
Among them, 2023Q3 achieved revenue of 997 million yuan, +67.81% year-on-year and +37.79%; realized net profit of 70 million yuan, +755.39% year-on-year, +43.46%; and average return on net assets was 3.02%, an increase of 2.63 percentage points over the previous year. The gross profit margin of sales was 20.74%, up 6.18 percentage points from the previous year and down 2.24 percentage points from the previous year; the net profit margin on sales was 7.08%, up 5.71 percentage points from the previous year, up 0.26 percentage points from the previous year.
Investment highlights:
Sales of phosphorus chemical products and profit recovery, 2023Q3 profit increased significantly month-on-month in 2023Q3. The company achieved revenue of 997 million yuan, +403 million yuan, and +273 million yuan month-on-month; realized net profit of 70 million yuan, +62 million yuan year-on-year, and +021 million yuan month-on-month.
Among them, 2023Q3 achieved gross profit of 206 million yuan, +120 million yuan year-on-year, and +40 million yuan month-on-month. The sharp increase in the company's profit in the third quarter was mainly due to the year-on-year increase in phosphate ore sales. The price of phosphate ore fell in the third quarter compared to the same period, but it was still at an all-time high. The profit level of phosphate ore was high, which contributed greatly to the company's performance in the third quarter. According to Wind data, the average price of 2023Q3 phosphate ore was 895 yuan/ton, -14.66% year over year and -13.31% month on month. In terms of period expenses, the sales/management/R&D/financial expenses of 2023Q3 companies were 0.35/0.39/0.10/011 million yuan respectively, compared with +0.13/+0.07/+0.01/+0.01/+0.04 billion yuan, and +0.10/ +0.04/+0.03/-0.02 billion yuan over the previous year. In the first three quarters of 2023, the net cash flow from the company's operating activities was 304 million yuan, an increase of 1273.17% year on year, mainly due to a year-on-year increase in sales receipts and a year-on-year decrease in prepaid material supplier payments. In the first three quarters of 2023, the company received 2,489 billion yuan in cash from sales of goods and provision of labor services, up to 352 million yuan; cash from purchasing goods and receiving labor payments was 1,782 billion yuan, or -102 million yuan over the same period last year.
Since the fourth quarter, there has been an overall shortage of supply in the phosphate ore market, and prices have risen slightly. According to Wind data, as of November 2, 2023, the price of phosphate ore was 972 yuan/ton, up 1.78% from the end of September. As the construction of the company's Xiaogaozhai phosphate mine progresses, phosphate ore production is expected to increase further, and it is optimistic that the company's performance in the fourth quarter will continue to grow.
The advantages of high-grade phosphate ore resources are remarkable. The integrated layout of phosphorus chemicals continued to advance. As of the end of September 2023, the company's ongoing projects were 1,233 billion yuan, an increase of 45.82% over the end of 2022, mainly due to increased construction investment in the Guizhou Patan Xiaogaozhai phosphate project, the Guizhou Batian new energy project, and the new fertilizer construction project in Shaoguan Batian. The company spent 343 million yuan to obtain prospecting rights for the Xiaogaozhai phosphate ore in Weng'an County, Guizhou Province. In May 2020, Guizhou Batian, a wholly-owned subsidiary of the company, received a “mining license”. The amount of phosphate ore resources in Xiaogaozhai, Guizhou (331) 2631+ (332) 1698+ (333) 2063 = 63.92 million tons, the P2O5 average is 26.74%, and the phosphate ore production capacity is 900,000 tons. As of the end of the third quarter of 2023, it is in the mine construction stage. The construction of phosphate ore has fundamentally ensured the safety, nutrition and environmental protection of the company's main products, guaranteed the timely provision of high-quality raw materials for the first phase of the Guizhou Patan project, and strongly guaranteed the safety of its own industry. In 2021, Patan Co., Ltd. invested 100 million yuan to establish a wholly-owned subsidiary, Patan New Energy Materials Co., Ltd., to engage in the production of new energy materials and related supporting engineering business. On November 9, 2021, Patan Co., Ltd. signed a framework agreement with the Weng'an County People's Government to officially launch new battery-grade ferric phosphate materials and supporting projects in Weng'an using green resources from phosphate ore. The Guizhou Batian Iron Phosphate Phase I project was also officially put on the agenda. The capital was later increased on June 23, 2022, and the Guizhou New Kinetic Energy Industry Fund was introduced, further speeding up the construction of the new energy industry. The company seizes the development opportunities of the new energy materials market, accelerates the transformation and upgrading of the phosphorus industry, optimizes the industrial structure, and forms a complete industrial chain of “phosphate ore - phosphate - iron phosphate”, which is expected to achieve strong cost competitiveness in the iron phosphate industry.
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 3.13, 5.09, and 727 million yuan, respectively, corresponding to PE of 16, 10, and 7 times. The company has outstanding advantages in phosphate ore resources, and integrated mineralization projects continue to advance. We are optimistic about the company's long-term development and maintain 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.