Incidents:
The company released its report for the third quarter of 2023. In the first three quarters of 2023, the company achieved operating income of 2,881 billion yuan, a year-on-year increase of 19.81%; realized net profit of 994 million yuan, a year-on-year decrease of 34.54%; 2023Q3 achieved operating income of 869 million yuan, a year-on-year increase of 33.83%, a year-on-year decrease of 25.53%; and realized net profit of 278 million yuan, a year-on-year decrease of 34.20%, a decrease of 27.03% over the previous year.
The average price of 2023Q3 potassium chloride declined year-on-year and month-on-month, and the company's short-term performance was under pressure.
Since mid-2022, the price of potassium chloride has entered a downward stage. In July of this year, the price of potassium chloride fell below 2,300 yuan/ton. According to Baichuan Yingfu data, the average price of 2023Q3 potassium chloride was 2,524 yuan/ton, -10.07% month-on-month and -45.34% year-on-year, and the company's performance was under pressure in the short term. Since August this year, the price of potassium chloride has begun to rebound from the bottom. As of October 31, 2023, the average price of potassium chloride market was 2,842 yuan/ton, up 24% from the previous low. With the gradual restoration of potassium chloride prices and the gradual release of the second million-ton project, we are optimistic that the company's performance in the fourth quarter will improve month-on-month. In terms of expenses, the company's sales rate, management fee rate, financial rate, and R&D rate for the first three quarters of 2023 were 0.97%, 15.66%, 0.27%, and 0.48%, respectively, compared with +0.59pct, +10.29pct, +2.00pct, and +0.48pct, respectively. The increase in management expenses is due to the increase in share payment costs.
The geopolitical conflict brought about supply concerns, and the continuous release of potash fertilizer helped the company grow.
Potash exports from Belarus and Russia have been blocked due to geopolitical influences. The Arab-Israeli conflict broke out in October of this year. Israel is also one of the world's major potash producers. This incident has brought further uncertainty to the supply of potash fertilizer. Currently, the company's potash fertilizer project is in a rapid release period. The company's second million ton project has already begun to contribute increments. The third million ton potash project is scheduled to be completed by the end of this year, and the company's potash production capacity is expected to reach 5 million tons/year in 2025. Against the backdrop of tight global potash fertilizer supply, the company's products are expected to experience a sharp rise in volume and price. At the same time, the company made rational use of associated resources, and the first non-potassium project, the “10,000 tons/year bromine project”, was put into operation in May this year. The development of bromine projects is expected to become a new profit growth point for the company, while also laying a good foundation for the development of the company's non-potassium business.
Investment advice:
We expect the company's net profit from 2023-2025 to be 1,584/25.32/2,956 billion yuan, EPS is 1.70/2.73/3.18 yuan, and corresponding PE is 17/10/9 times, respectively. The company has abundant potash resources, potash projects are progressing in an orderly manner, and the product profit level is high. With the gradual implementation of potash fertilizer projects, performance is expected to continue to improve and maintain the “buy” rating.
Risk warning: The price of potassium chloride products has fallen, and the commissioning of new projects falls short of expectations.