Incidents:
On March 29, 2024, Chuanheng Co., Ltd. released its 2023 annual report: in 2023, the company achieved operating income of 4.320 billion yuan, an increase of 25.30%; achieved net profit attributable to shareholders of listed companies of 766 million yuan, an increase of 1.02% year on year; weighted average return on net assets was 16.44%, down 2.70 percentage points year on year. The gross profit margin on sales was 39.04%, a year-on-year decrease of 5.89 percentage points; the net profit margin was 18.26%, a year-on-year decrease of 4.61 percentage points.
Among them, the company achieved revenue of 1,248 billion yuan in 2023Q4, +25.81% year on month; realized net profit of 275 million yuan, +62.76% year on year, +25.98% month on month; ROE was 5.25%, up 1.32 percentage points year on year and 0.45 percentage points month on month. The gross profit margin on sales was 44.61%, up 0.21 percentage points year on year and 4.67 percentage points month on month; net sales margin was 22.55%, up 4.71 percentage points year on year and 3.17 percentage points month on month.
Investment highlights:
n Revenue from the commissioning of new construction projects increased dramatically, and the decline in product prices affected the company's gross margin to achieve operating income of 4.320 billion yuan in 2023, an increase of 25.30% over the previous year; realized net profit attributable to shareholders of listed companies of 766 million yuan, an increase of 1.02% over the previous year. The sharp increase in the company's revenue is mainly due to the company's newly built production plants being put into operation one after another, adding iron phosphate and phosphoric acid products, a year-on-year increase in production and sales of the natural product monoammonium phosphate, and a sharp rise in the volume and price of phosphate ore exported. In 2023, the company achieved sales volume of 229,900 tons of ammonium phosphate, a year-on-year increase of 41.59%; sales of phosphate ore reached 754,200 tons, an increase of 13.28% over the previous year; and sales of 151,400 tons of phosphoric acid.
Affected by falling product prices, the company's gross margin declined, and profit growth was less than revenue.
In 2023, the company achieved revenue of 1,203 million yuan, -23.41% year-on-year, with a gross profit margin of 36.69%, a year-on-year decrease of 12.23 percentage points; monoammonium phosphate achieved revenue of 932 million yuan, +21.33%, gross profit margin 35.91%, a year-on-year decrease of 3.44 percentage points; phosphoric acid achieved revenue of 849 million yuan, +233.34% year-on-year, and a gross profit margin of 29.15%, a year-on-year decrease of 6.38 percentage points. In terms of period expenses, the company's sales/management/R&D/finance expenses rate in 2023 was 1.71%/5.67%/2.34%/3.05%, respectively, +0.03/-0.79/-0.85/+0.67pct. Financial expenses are mainly due to an increase in interest due to an increase in bank loan principal, as well as the conversion of fund-raising projects and the inclusion of interest on convertible bonds. In 2023, the net cash flow from the company's operating activities was $528 million, -2.81% year-on-year.
2023Q4 profit increased month-on-month. The high price of phosphate ore was optimistic about the 2023Q4 results. The company achieved net profit of 275 million yuan, +106 million yuan year over year, and +57 million yuan month-on-month; of this, gross profit was 557 million yuan, +117 million yuan year on year, and +81 million yuan month on month. The company's gross profit increased, mainly due to increased sales of products such as phosphate ore and phosphoric acid. According to Wind data, the average price of 2023Q4 phosphate ore was 984 yuan/ton, -5.57%, +9.95% month-on-month; the average price of industrial-grade monoammonium phosphate was 5,464 yuan/ton, -12.61%, +7.30% month-on-month, 602 yuan/ton, -40.22%, and -25.70% month-on-month; the price difference of calcium dihydrogen phosphate was 3,451 yuan/ton, +3.19% month-on-month, and 1161 yuan/ton, -29.36% month-on-month, -11.39% month-on-month. In terms of period expenses, the company's sales/management/R&D/finance expenses in 2023Q4 were 0.25/0.60/0.35/0.33 billion yuan respectively, +0.00/ -0.08/-0.23/ -0.02 billion yuan year-on-year, and +0.07/+0.04/+0.13/ -0.09 billion yuan compared to the previous month.
2023Q4's asset impairment losses were -024 million yuan, -24 million yuan year on year, and -024 million yuan month-on-month, mainly due to inventory price drop losses and contract performance cost impairment losses.
According to Wind data, since the first quarter of 2024 (as of March 28, 2024), the average price of industrial grade ammonium phosphate was 5333 yuan/ton, -17.12%, -2.40% month-on-month, 709 yuan/ton, -45.67% year-on-year, +17.67% month-on-month; the price of calcium dihydrogen phosphate was 3,463 yuan/ton, -9.64%, month-on-month +0.33%, the price difference was 1,194 yuan/ton, -17.66% year-on-month, +2.83% month-on-month; 22.57%, -7.40% month-on-month, price difference 1,339 yuan/ton, -55.77% YoY, -27.02% month-on-month. The average price of phosphate ore was 1009 yuan/ton, -4.67% year-on-year and +2.57% month-on-month. At the end of 2023, the company's Guangxi projects such as calcium dihydrogen phosphate, purified phosphoric acid, and anhydrous hydrogen fluoride entered trial production. Sales are expected to grow. At the same time, phosphate ore prices remain high, and the first quarter results are optimistic.
The advantages of phosphate ore resources continue to expand, and Fulin Mining, a holding subsidiary of the company's long-term growth, holds three mining rights: Xiaoba phosphate mining rights, Xinqiao phosphate mine mining rights, and Jigongling phosphate mining rights. In 2023, Fulin Mining achieved a total mining volume of 2.992 million tons of phosphate ore, mainly for the company's own use and 754,200 tons of phosphate ore exported. The company is building 2.5 million tons/year of the Jigongling phosphate mine and the participating company Tianyi Mining has a phosphate ore production capacity of 5 million tons/year. As production capacity is released one after another, the company's resource advantage is expected to be further enhanced. Benefiting from rapid growth in the scale of new energy vehicles and energy storage, and the limited increase in the supply of superimposed phosphate ore, China's phosphate ore market price remains high. The company is rich in phosphate ore reserves and is expected to gain a significant competitive advantage in future development.
Focus on shareholder returns and implement high levels of cash dividends
On March 29, 2024, the company announced the 2023 profit distribution plan. Based on the total share capital on the day of share registration as determined in the profit distribution implementation notice, cash dividends of 10.00 yuan (tax included) will be distributed to all shareholders for every 10 shares. Assuming that all “Chuanheng Bonds” are converted to shares before the confirmed share registration date, the total share capital of the company is not expected to exceed 595,010,983 shares (without considering the impact of share repurchases on the total share capital). The total cash dividend is not expected to exceed $10.00 (tax included) for every 10 shares. 595,010,983.00 yuan, with a dividend ratio of 77.64%. The company implements higher cash dividends to protect the company's value and shareholders' rights.
Profit forecasts and investment ratings
The company's net profit for 2024-2026 is estimated to be 1,020, 12.40, and 1,591 billion yuan, respectively, corresponding to PE 10, 8.0, and 6 times, respectively. The company's phosphate ore production capacity is gradually expanding, and multiple projects are progressing in an orderly manner, optimistic about the company's growth, and maintaining 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.