Key points of investment
With a production capacity of one million tons, it is expected to become a world-class supplier of potash fertilizer
The company is a leading domestic potash producer. The company currently owns a 263.3 square kilometer potash mine in Khammouane Province, Laos. It is estimated that the reserves of pure potassium chloride resources exceed 1 billion tons, making it the enterprise with the largest amount of potash resources in Asia. The company relies on high-quality potash resources and a stable political environment in Laos to carry out potash fertilizer manufacturing. At present, it has achieved stable production of the first 1 million tons/year potash project and commissioning of the second 1 million tons/year potash fertilizer project, and is expected to achieve 5 million tons/year potash production capacity by 2025. Thanks to the rapid expansion of its own production capacity, the company strives to produce 1.8 to 2 million tons of potash fertilizer in 2023, 2.8-3 million tons of potash fertilizer in 2024, and continue production with the goal of increasing production by 1 million tons each year. Against the backdrop of uneven distribution of global potassium resources and a slowdown in new production capacity, with the large-scale expansion of the company's potash fertilizer production capacity and innovation and optimization of production processes, the company will continue to reduce costs and increase efficiency and increase profit levels. We are optimistic about the company's long-term development. Potash production capacity will continue to expand, and it is expected to become the world's leading supplier of potash fertilizer.
There is a mismatch between global potash supply and demand, and the expansion of potassium production is expected to improve the problem of insufficient domestic potash supply
Global demand for potash is rising as the population grows and the area of cultivated land per capita decreases. Potash consumption is mainly concentrated in East Asia, Latin America, and North America, and unequal distribution of global potassium resources has led to a mismatch between supply and demand. Asia is a populated continent. With a large amount of cultivated land, demand for potash fertilizer is strong, and the growth rate of demand exceeds the global average. China's potash fertilizer is highly dependent on imports. In 2022, China's potassium chloride demand side was about 16.04 million tons, and domestic production was only 6.517 million tons, and the self-sufficiency rate was low. Thanks to the expansion of international potash production capacity, we expect domestic potash supply to continue to rise, and the gap between supply and demand is expected to shrink to 855,500 tons in 2025.
A number of factors have contributed to the increase in potash prices, and the international performance of Potassium is expected to grow rapidly
Global food prices and production have risen markedly. Wheat/soybean/corn prices have risen by 37.74%/2.10%/3.25% respectively in the past ten years, and production has increased by 6.22%/14.78%/25.19% in the past five years. At the same time, global geopolitical tension, and the Russian-Ukrainian conflict led to a reduction in potash production in Russia/Belarus, thus driving up global potash prices; in September 2023, the average monthly price of potassium chloride was 2824.5 yuan/ton, up 4.86% from the previous quarter. Asia Potassium International seizes the opportunity to continue to expand production capacity. It plans to achieve 2 million tons of production capacity in 2023 and increase to 5 million tons in the next few years. Currently, domestic downstream demand for potash fertilizer is strong, inventories are declining, and the overall prosperity of the industry is high. In the long run, with the signing of international potash contracts, potash prices are expected to remain stable, international potash production capacity continues to expand, and the company's performance is expected to grow rapidly.
Collaborate to develop non-potassium industries such as bromine to open a second growth curve
Bromine is a by-product of potash fertilizer production and has great economic value; while expanding potash production capacity, the company has increased the comprehensive use of bromine, and successfully put into operation and production of a project with an annual output of 10,000 tons of bromine in May 2023; in the future, as potash production capacity increases, the company is expected to achieve 5-7 thousand tons of bromine production capacity and expand multiple new bromine-based material product lines to cultivate new profit points while improving the current situation where domestic bromine is highly dependent on imports. Potash fertilizer is rich in associated resources. In the future, the company will further collaborate to develop the industrial chain of potash fertilizer and non-potassium businesses to maximize resource utilization.
Profit forecasting and valuation
The company has sufficient reserves of potash resources, the production capacity of one million tons of potash fertilizer has been gradually released, and the non-potassium industry chain such as bromine continues to expand, and growth is strong. Operating revenue for 23-25 is estimated to be 45.19/86.75/10.510 billion yuan, respectively, net profit to mother is 15.68/27.18/3.69 billion yuan, corresponding EPS is 1.69/2.93/3.41 yuan, and corresponding PE is 15.95/9.20/7.89, respectively, giving a “buy” rating.
Risk warning
Changes in international political events; production capacity expansion of the company's projects falls short of expectations; fluctuations in the potash industry