There was a significant month-on-month decline in the third quarter, lower than market expectations. The company previously released its three-quarter report for 2023. Q3 achieved operating income of 1,317 billion yuan, +110.58% year-on-year, +57.81% month-on-month, net profit of -23 million yuan, -286.07% year-on-year, and -142.21% month-on-month. The company's 23Q3 revenue benefited from the bottoming out of the industry, but gross margin and net profit margin declined sharply from month to month. Combined with the company's 23Q3 inventory reduction of more than 300 million yuan compared to the interim report, we judge that the decline in 23Q3 profit margin was mainly due to the removal of high-priced raw materials in the early stages. The bottom recovery in 23Q3 product prices is difficult to cover the rise in raw material costs.

The phosphate fertilizer boom is recovering, and prices on the resource side are strong. Currently, chemical fertilizer has entered the peak winter storage season, and the price of monoammonium phosphate continues to rise. According to Baichuan Yingfu data, the current price is 3,442 yuan/ton, up 42.3% from the lowest point in early July this year, and 23.9% from the average price of 23Q3. Demand for seasonal winter storage of chemical fertilizers has started, and the demand side has brought strong support; the pressure on the supply side to add fertilizer production capacity is relatively limited, and the peak energy demand season in the fourth quarter also brought cost support, so the fertilizer chain is easy to rise and fall. The premium capacity of phosphate ore resources upstream in the industrial chain is outstanding, fertilizer prices strongly support the momentum of phosphate ore, and it is difficult for phosphate ore to add a lot of production capacity in the short to medium term, so there is a big gap in expectations for the sustainability of its prosperity. The company's Lufa subsidiary currently has an annual production capacity of 800,000 tons for the Mingniwan phosphate mine, and the newly planned Yongwen phosphate ore design plan with an annual production capacity of 3 million tons has been reported to the State Administration of Mine Safety. Currently, it is still in the approval process. The comprehensive grade of Yongwen phosphate ore has reached more than 30%. If implemented in the future, it will open up room for growth on the company's scarce resources side.

It is planned to invest in an integrated mineralization project for new fluorophosphorus materials. The company recently plans to sign an investment agreement and supplementary agreement with the Kaiyang County People's Government. It plans to invest in the construction of a new phosphorus-fluorine materials mineralization integrated industrial park project in Kaiyang County, Guizhou Province, with a total planned investment of about 4.5 billion dollars. The construction includes 3 million tons of Yongwen green mine construction and Mingniwan mine construction, 300,000 tons of wet phosphoric acid, 200,000 tons of purified phosphoric acid and 100,000 tons of phosphorus-based new energy materials, 20,000 tons of new fluorine materials, 200,000 tons of new high-efficiency fertilizer, 900,000 tons of phosphogypsum filling and supporting projects. The first phase of the project has a total investment of about 1.73 billion dollars, including 150,000 tons of wet phosphoric acid, 100,000 tons of purified phosphoric acid, 10,000 tons of fluorine salt and supporting projects, and the construction of the Mingniwan Mine (including mineral processing).

Profits in the company's compound fertilizer and monoammonium phosphate business were under pressure this year, and although Q3 product prices picked up at the bottom, it was difficult to cover the rise in raw material costs, so the profit forecast was lowered. The company's net profit for 23-25 is predicted to be 221/3.45/394 million yuan respectively (original forecast of 641/719 million yuan in 23-24). Referring to the historical valuation average of 16 times pe, giving the company 16 times pe in 24 years and a target price of 6.40 yuan/share, maintaining the buying rating.

Risk warning: The recovery of the phosphate fertilizer boom fell short of expectations, the risk of fluctuations in raw material prices, and the progress of project construction and commissioning fell short of expectations.