Key points of investment:
The company issued a pre-reduction announcement for 2023 results, and the results were in line with expectations. The company expects to achieve net profit of 13.6 billion yuan to 1.46 billion yuan in 2023, down 75.05% to 76.76% year on year, and net profit without return to mother of 1.28 billion yuan, down 77.2% to 78.85% year on year. Of these, net profit due to mother is estimated to be 426 to 526 million yuan in 4Q23, down 44.0% to 54.7% year on year, up 31.0% to 61.8% month on month, and median value of 476 million yuan. The performance is in line with expectations. The year-on-year decline in the company's performance in 2023 is mainly due to changes in macroeconomics and market supply and demand, the market sentiment of the company's agrochemical sector and silicone sector declined markedly. Sales prices and production and sales volume of products such as glyphosate raw materials and silicone DMC declined to varying degrees year-on-year, and sector profits declined markedly. The month-on-month increase in 4Q23 is mainly due to the gradual recovery in the agrochemical market since the third quarter. Prices of products such as monoammonium phosphate, diammonium phosphate, phosphate ore, yellow phosphorus, and silicone have increased month-on-month, and profitability has increased.
Demand for winter storage of phosphate fertilizer was released in 4Q23. The supply side was affected by maintenance by some manufacturers, and the price of phosphate fertilizer increased month-on-month; the supply of phosphate ore was tight and the price increased month-on-month; yellow phosphorus was affected by electricity restrictions in Yunnan, and prices rose month-on-month; glyphosate continued to weaken, and prices fell month-on-month. According to Zhongnong Lihua's glyphosate data, the average price of glyphosate in 4Q23 was 28,500 yuan/ton, down 12.7% month-on-month and 46.6% year-on-year. According to Baichuan Yingfu data, the prices of phosphate ore, yellow phosphorus, monoammonium phosphate, and diammonium phosphate were 985.1, 24801.2, 3304.1, and 3671.9 yuan/ton respectively in 4Q23, up 10.3%, 2.0%, 18.9%, and 6.5%, respectively. They rose and fell -5.4%, -21.8%, 3.9%, and 2.6% year-on-year respectively. Silicone prices picked up slightly. According to Baichuan Yingfu silicone product data, the average price of silicone in 4Q23 was 14,395.2 yuan/ton, up 5.6% month-on-month and 18.1% year-on-year.
The company's specialty chemicals sector maintains a healthy development trend and is expected to contribute major profits throughout the year. In the future, it will focus on the new materials business such as phosphorus-based, silicon-based, sulfur-based and microelectronic materials to accelerate transformation and upgrading to a new technology-based green chemical materials enterprise. The company's key projects are progressing steadily. According to the company's semi-annual report, Xingfu Electronics, the holding subsidiary of the company, has now built 183,000 tons of wet electronic chemicals production capacity and is making every effort to promote the construction of the Hubei Electronic Chemical Zone, 20,000 tons of electronic-grade ammonia co-production projects; Hubei Xingrui's 550 ton silicone microcapsule pilot production line was completed in March 23, and mass sales have now been achieved; the company's phosphating agent project has completed an 800-ton pilot test and is currently developing a 5,000 ton industrial plant design. The company's 5,000 cubic meter aerogel felt project, the holding subsidiary Hubei Xingyou 200,000 ton battery grade iron phosphate project phase 1 project, the shareholding company Hubei Youxing's 300,000 ton lithium iron phosphate phase I project, and the lithium phosphor fluoride industry's 100,000 ton battery-grade lithium dihydrogen phosphate project will be completed and put into operation within the year. As of the end of 3Q23, the company's ongoing projects increased by 2,629 billion yuan to 5,095 billion yuan compared to the end of 2022.
Investment analysis opinion: Prices and profits of cyclical products such as glyphosate and silicone have dropped sharply, but since 3Q23, the phosphorus chemical industry has picked up, and prices have rebounded steadily. At the same time, considering that the company will strive to expand and strengthen the new materials business such as phosphorus-based materials, silicon-based materials, sulfur-based materials and microelectronic materials in the future, the company's industrial chain and technological advantages are leading, the path of transformation and upgrading is gradually paving, and the profit share of the new materials business sector is gradually increasing. Therefore, we maintain the company's net profit forecast for 2023-2025 at 1,420 million yuan, 1,765, and 21.95 yuan. The corresponding EPS is 1.29, 1.60, and 1.99 yuan, and the corresponding PE is 13X, 11X, and 9X, maintaining the accumulation rating.
Risk warning: 1. Prices of products such as phosphate ore, silicone, glyphosate, yellow phosphorus, phosphate fertilizer, and dimethyl sulfoxide continued to plummet; 2. The commissioning of new projects such as electronic chemicals fell short of expectations; 3. Short-term shutdown due to safety and environmental inspections.