Incident: 1) The company released its 2023 annual report. In 2023, it achieved operating income of 28.11 billion yuan, -7.3% year over year; realized net profit of 1.38 billion yuan, -76.4% year on year; realized deduction of non-net profit of 1.31 billion yuan, -78.3% year on year. Among them, 23Q4 achieved operating income of 6.18 billion yuan, +13.3%/-25.7% YoY; realized net profit of 445 million yuan, or -52.7%/+36.9% YoY; and realized deducted non-net profit of 434 million yuan, or -58.9%/+31.5% YoY. 2) The company announced a profit distribution plan for 2023, and plans to distribute a cash dividend of 0.6 yuan (tax included) per share. The total cash dividend accounts for 48.0% of net profit due to mother in 2023.
Judging from the operating data:
1) Low product prices dragged down the company's annual profit performance: in 2023, the company's glyphosate/ fertiliser/ specialty chemicals/silicone sector achieved revenue of 42.83/36.06/50.28/ 21.44 billion yuan, respectively; achieved sales volume of 17.14/123.97/44.94/18.73 million tons, respectively, +10.6%/+12.9%/-15.6%, respectively; achieved gross profit margin of 31.0% /8.7%/20.8%/4.3%, -27.1/-10.4/-17.5/-13.2 percentage points, respectively. As can be seen from the relationship between revenue and sales, with the exception of silicone, which was affected by downstream prosperity, the company's other products all achieved year-on-year sales growth, but the sharp decline in product prices greatly affected the company's profit center. In 2023, the company recorded a gross profit margin of 16.17%, a year-on-year decrease of 19.44 percentage points.
2) The company's performance continued to recover in the third and fourth quarter: Since 23Q3, the agrochemical sector market has gradually picked up, and the profitability of the company's products has increased. According to Baichuan Yingfu statistics, the average market prices for 2023Q4 phosphate ore (30% grade) /diammonium phospate/glyphosate/silicone DMC were 999.1/3671.9/27861.1/14395.2 yuan/ton, respectively, +11.6%/+6.5%/-13.7%/+5.6% month-on-month, respectively. Among them, if glyphosate excludes the impact of large price fluctuations in the third quarter in the short term, according to the company's production and sales data, its average sales price in Q4 rose by about 2.0% month-on-month. At the same time, along with the decline in raw material costs and an increase in construction, profitability continued to recover. The 23Q4 company recorded a gross profit margin of 26.89%, an increase of 14.28 PCT over the previous month, and net profit to mother increased 37% month-on-month.
3) The company accrued more asset impairment losses in the fourth quarter: 23Q4 company accrued 341 million yuan in asset impairment losses and a total of 355 million yuan in asset impairment losses for the whole year. The latter was mainly due to inventory price drop losses of 207 million yuan and impairment losses of goodwill of 120 million yuan. Asset impairment losses for the full year increased by $135 million compared to 2022. Goodwill impairment losses were mainly due to the transition losses of Inner Mongolia Xingfa and Chu Feng Chemical.
Strengthen technological innovation, advance key new materials projects steadily, and promote the transformation and upgrading of the company. In 2023, the company invested 1,117 billion yuan in R&D, maintaining a relatively high level, with a R&D cost ratio of about 4%. During the year, a number of key new material projects were put into operation, including Xingfu Electronics' 30,000 tons/year electronic-grade phosphoric acid +20,000 tons/year electronic-grade etching solution, Hubei Ruijia 50,000 tons/year photovoltaic glue, Hubei Xingyou 300,000 tons/year battery-grade iron phosphate phase I project, etc., and the company's new microelectronics materials and new energy industry layout and strength continued to grow. In addition, Hubei Xingrui 550 tons/year microcapsules+5,000 m3/year aerogel felt and Hubei Jixing 800 tons/year phosphating agent have also been put into operation one after another, creating new profit growth points for the company.
Upstream resources are integrated to continuously strengthen cost advantages; downstream intensive cultivation continues to strengthen the leading position in R&D.
Upstream, the company is rich in phosphate resources, and the Xingshan area of Hubei has rich green power resources. Currently, the Houping 2 million ton phosphate beneficiation project and the Yidu Xingfa wet phosphoric acid refining technology improvement project are progressing steadily. Downstream, the company has stocked a series of key products such as black phosphorus, ammonium glyphosate, and BOE etching solution. Currently, the spin-off and listing of Xingfu Electronics is being fully promoted. We are optimistic that the company will continue to deepen R&D results and implementation transformation. It is expected that in the medium to long term, it will rely on the advantages of industrial chain integration to achieve a steady increase in the profit center.
Repurchase and cancellation+increase in holdings, demonstrating the company's confidence in development. In 2023, the company invested 200 million yuan to buy back 8.3824 million shares and cancel them; the company's directors, supervisors and executives collectively increased their holdings by 820,000 shares; in December, the company revealed plans for the controlling shareholder to increase their holdings. The majority shareholder, Yichang Xingfa, plans to increase the company's shares by 1-2 billion yuan with its own capital. By the end of March, it had completed an increase of about 100 million yuan in holdings. The above fully reflects the company's confidence in future development prospects and medium- to long-term investment value.
Investment proposal: Based on the company's 2023 results and changes in the price spread of main products, we adjusted the company's net profit forecast for 2024-2025 from 21.45/2,541 billion yuan to 2,198/2,622 billion yuan, and supplement the 2026 net profit forecast of 2,796 billion yuan, corresponding to current PE 9.5/8.0/7.5x, respectively. Considering that the company's current performance is at the bottom of the cycle and is gradually recovering, referring to the company's 5-year historical valuation center, we gave 2024 a target PE of 14 times, corresponding to a target price of 27.86 yuan, maintaining a “strong push” rating.
Risk warning: Project progress falls short of expectations; international oil prices fluctuate greatly; safety and environmental policy changes.