The company expects to achieve net profit of 568-628 million yuan after deduction in 2023, an increase of 40%-55% over the previous year.

The company expects to achieve net profit of 639-705 million yuan in 2023, a year-on-year increase of 45%-60%, net profit after deduction of 568-628 million yuan, an increase of 40%-55% year-on-year, and basic earnings per share of 0.55-0.61 yuan/share. The increase in the company's performance is mainly due to efficient collaboration between production, supply and marketing. The production and sales situation of the company's products has continued to improve steadily, sales have achieved double-digit growth, and gross profit margin has increased significantly; in addition, the company's steady performance in sales of high-margin products has further enhanced the company's profitability. In terms of investment income, the company expects a year-on-year decrease in investment income for joint ventures. Mainly due to the progress of construction of the new Songzi project, Songzi New Materials Company's expenses increased year-on-year during the period, and part of the sales company's employment expenses also increased significantly as product sales increased.

The company plans to repurchase not less than 30 million yuan (inclusive) and cancel the share capital. The company plans to use its own funds to repurchase some of the company's RMB common shares (A shares) through centralized bidding transactions through the Shenzhen Stock Exchange trading system, all of which will be used to cancel the share capital. The total repurchase capital is not less than 30 million yuan (inclusive), no more than 50 million yuan (inclusive), and the repurchase price is no more than 7 yuan/share. The estimated number of shares to be repurchased is 4.285,700 to 7.142,900 shares, accounting for 0.37% to 0.62% of the company's current total share capital. The implementation period is no more than 12 months from the date the shareholders' meeting deliberates and approves the share repurchase plan. On January 26, 2024, for the first time, the company repurchased 1.2656 million shares of the company's shares through a special securities account for share repurchase through centralized bidding transactions. The highest transaction price was 6.33 yuan/share, the lowest transaction price was 6.30 yuan/share, and the total transaction amount was 7.9891.44 million yuan (not including transaction fees).

The company actively lays out new projects. The company actively lays out new projects: 1) In terms of new materials, according to the 20230818 investor relations record, the company is carrying out iron phosphate and refined phosphoric acid projects through Songzi New Materials. Among them, the iron phosphate project plans to build 4 50,000 tons of iron phosphate production plants totaling 200,000 tons; the refined phosphoric acid project has already started, and the planned production capacity of the project is 100,000 tons/year, co-produced with iron phosphate. The main product is iron phosphate. 2) In terms of compound fertilizer, according to the company's 2023H1 report, the 300,000 tons/year spray sulfur-based compound fertilizer production line in Lihe Fertilizer's green and efficient compound fertilizer project with an annual output of 1 million tons has been put into use at 23H1. The Lihe fertilizer industry has a strong location advantage. Sprayed sulfur-based compound fertilizer can cover the Northeast region with a strong cost advantage, making up for the company's shortcomings in the sulfur-based compound fertilizer market in Northeast China.

Profit forecast and valuation: We expect the company's net profit to be 660, 754, and 864 million yuan respectively in 2023-2025, with corresponding EPS of 0.57 yuan, 0.65 yuan, and 0.75 yuan respectively. Referring to companies in the same industry, we gave the company 11-13 times PE in 2024 (corresponding PB was 1.21-1.43 times), and the corresponding reasonable value range was 7.15-8.45 yuan. For the first time, coverage was given, and “superior to the market” rating.

Risk warning: Product prices have fallen, downstream demand has fallen short of expectations, and production capacity under construction has fallen short of expectations.