Performance was in line with expectations, and gross margin recovered year over year
Incident 1: The company released its 2024 quarterly report. During the reporting period, the company achieved revenue of 13.857 billion yuan, yoy -12.77%; net profit to mother was 1,459 billion yuan, yoy -7.18%, in line with expectations.
Incident 2: According to news, from April 12 to August 31, urea export inspection was relaxed.
Conclusions and suggestions: Affected by falling product prices, revenue and profit declined year on year, but benefiting from lower raw material prices, gross margin increased year on year. Prices of the company's main products have stabilized, and it is expected that the company's profits will continue to recover. After the liberalization of urea law, urea prices are expected to rise, and profits in the company's fertilizer sector are expected to increase.
The company is a leading domestic phosphorus chemical enterprise. Based on the fertilizer industry, the company relies on its own phosphate ore, coal mine resources, and the advantages of highly self-sufficient large-scale ammonia synthesis plants, and has obvious integrated advantages. I am optimistic about the company's profit recovery and give it a “buy” rating.
Product prices declined, and the company's performance was briefly pressured: in Q1 of 2024, the prices of the company's main products, ammonium phosphate, urea, chemical fertilizer, polyformaldehyde, etc. generally declined, affecting the company's revenue and profits. The company's average sales price of ammonium phosphate in 2024Q1 was 3,353 yuan/ton, yoy -5.3%; the average price of compound fertilizer was 3073 yuan/ton, yoy -15%; the average price of urea was 2184 yuan/ton, yoy -16%; the average price of polyformaldehyde was 11832 yuan/ton, yoy -3%; the average price of yellow phosphorus was 20,382 yuan/ton, yoy -23%; the average price of feed grade phosphate was 3,227 yuan/ton, yoy -7%. Prices on the raw material side dropped even more, and the Q1 company's gross margin increased by 1.49pct year on year to 19.12%. The average price of the company's main raw material coal Q1 was 1,066 yuan/ton, YOY -16%, the average price of sulfur was 1,269 yuan/ton, YOY -28%. Phosphate ore prices have remained high since April, and the decline in the prices of urea, fertilizer, and ammonium phosphate has shrunk, showing a steady trend. The price of thermal coal on the raw material side is still declining. It is expected that the company's gross margin will be further restored in the future.
Qinghai Yuntianhua merged, and fertilizer sales increased dramatically: in Q2 2023, the company acquired Qinghai Yuntianhua, and sales of some of the company's products increased dramatically. 24Q1 compound fertilizer sold 430,000 tons, yoy +36%, urea sales volume of 620,000 tons, yoy +32%. The company sold 1.18 million tons of ammonium phosphate, yoy -4%, polyformaldehyde sold 30,000 tons, yoy -2%, and sold 120,000 tons of feed-grade calcium phosphate, which was the same as the previous year.
Export laws were relaxed to boost urea prices: At the beginning of December last year, domestic urea export policy was tightened in order to guarantee domestic urea supply and “ensure stable supply and price” of chemical fertilizer for spring farming and preparation. In the first two months of 2024, domestic urea exports were 215,000 tons, YOY -95%. There was news over the weekend that urea exports will be liberalized. The legal inspection period will be changed from 40 working days to 10 working days, and urea futures prices will rise sharply. Under the influence of favorable exports, urea prices are expected to rise in the short term. The company's urea production capacity is 2.57 million tons, and product profitability is expected to increase.
Improve quality and efficiency, and guarantee dividend ratio: The company also announced the 2024 plan to improve quality and efficiency. The net profit realized each year after making up for losses and withdrawing the statutory provident fund, the distribution ratio is not less than 30% of the profit that can be distributed. In 2023, the company paid a dividend of 1 yuan per share. Based on the closing price on April 14, 2024, the dividend rate reached 5.17%. Since the company's performance improved in 2022, it has maintained a high dividend ratio. The company distributed profit ratios in 2022 and 2023 were 30.47% and 40.56%, respectively.
Profit forecast: Considering export opening expectations, we revised our profit forecast. We expect the company to achieve net profit of 46.7/49.6/5.29 billion yuan in 2024/2025/2026 (previous value: 44/48/5.2 billion yuan), yoy +3%/+6%/+7%, equivalent to EPS of 2.55/2.70/2.89 yuan respectively. Currently, the PE corresponding to the A-share price is 8/7/7 times, respectively. The valuation is reasonable, giving a “buy” rating.
Risk warning: 1. The price of the company's products falls short of expectations; 2. The release of new production capacity falls short of expectations;