Incidents:
On March 25, 2024, Patan Co., Ltd. issued an announcement on the approval of the company's Xiaogaozhai phosphate mine safety facility (major change) design: the company's Xiaogaozhai phosphate mine safety facility (major change) was approved, and the approved production and construction scale of Xiaogaozhai phosphate mine increased from 900,000 tons/year to 2 million tons/year.
Investment highlights:
The phosphate ore price boom is expected to be maintained in 2024. The company's production capacity will increase to 2 million tons/year, Guizhou Patan submitted the “Non-coal Mine Construction Project Safety Facility Design Review Application” to the Guizhou Provincial Emergency Management Department on December 28, 2023, and obtained the “Provincial Emergency Department's Approval on the Design Review of the Xiaogaozhai Phosphate Mine Safety Facility (Major Changes) of Guizhou Batian Ecological Engineering Co., Ltd.”. The production and construction scale of Xiaogaozhai Phosphate Mine was approved to increase from 900,000 tons/year to 2 million tons/year. The company's approval for the construction of phosphate ore and the expansion of the scale of mining is conducive to expanding and improving the upstream and downstream industries, further promoting the integrated phosphorous chemical strategy, forming an industrial chain of phosphorous chemical new energy battery materials from phosphate ore, phosphate concentrate, and high-purity phosphoric acid (salt), and achieving multiple mining of rich minerals and efficient use of phosphorus resources.
Affected by factors such as the slow expansion of production capacity and a steady increase in demand, the phosphate ore boom is expected to be maintained in 2024. According to Wind data, as of March 25, 2024, the price of phosphate ore was 1,015 yuan/ton, and the price of phosphate ore has been fluctuating at a high level since the second half of 2022. Supply side: The phosphate industry is a capital-intensive industry. Various aspects such as project construction, equipment investment, safety and environmental protection require a large amount of capital investment. Generally speaking, newly built mines take 3-5 years to carry out environmental construction before they can be put into operation, and it takes 1-2 years to complete the production capacity climb after completion. We expect the compound growth rate of production capacity to be only 3.97% in 2023-2025. Phosphate ore will enter a centralized production period in 2026, and production capacity is expected to increase by 12.43% to 148 million tons. Demand side: China attaches great importance to food security. The area under cultivation of grain continues to grow, and the demand for phosphate fertilizer is expected to increase steadily. Benefiting from the rapid development of new energy vehicles, demand for lithium iron phosphate batteries is strong, and it is expected that the demand for phosphate ore in the field of new energy will continue to grow. We estimate the 2023-2026 phosphate demand CAGR of 4.02%. Under the influence of factors such as slow capacity expansion and steady increase in demand, we expect the operating rate of phosphate ore to be 89.9%/86.5%/80.1% in 2024, respectively, and the phosphate ore boom is expected to be maintained in 2024.
Phosphate ore began to be released, and the 2023 performance increased significantly
On January 31, 2024, the company announced its 2023 annual results forecast. In 2023, the company expects to achieve net profit of 240 to 260 million yuan, an increase of 97.99%-114.48% over the previous year. It is expected to achieve net profit after deducting non-recurring profit and loss of 218-238 million yuan, an increase of 159.72% to 183.54% over the previous year. Among them, in 2023Q4, the company expects to achieve net profit of 0.49-0.69 million yuan, a year-on-year increase of 28.00%-80.47%, and a month-on-month decrease of 30.63%-2.19%. It is expected to achieve net profit of 0.54 to 74 million yuan after deducting non-recurring profit and loss, an increase of 330.64%-490.04% year-on-year, and a year-on-year decrease of 22.78% - 5.80% increase. The sharp increase in the company's performance in 2023 is mainly due to high gross profit from sales of phosphate ore and processed products.
Profit forecasts and investment ratings
Taking into account the price differences of major products and the progress of the phosphate ore project, we have made appropriate adjustments to the company's performance. The company's net profit for 2023-2025 is estimated to be 2.45, 6.25, and 783 million yuan, respectively, corresponding to PE 21.5, 8.4, and 6.7 times, respectively. The company has outstanding phosphate ore resource advantages, and is expected to benefit from the integrated development of the industrial chain and maintain a “buy” rating.
Risk warning
Risk of macroeconomic fluctuations; production capacity investment falling short of expectations; risk of product price fluctuations; risk of fluctuations in raw material prices; decline in future demand; progress of new projects falling short of expectations.