Incident: The company released its 2023 annual report. During the period, it achieved revenue of 17.042 billion yuan, -17.72% year-on-year, and realized net profit of 453 million yuan, or -79.06% year-on-year. In 2023, the company plans to distribute a cash dividend of 3.20 yuan (tax included) to all shareholders for every 10 shares based on a total share capital of 1,058 million shares, for a total cash dividend of 339 million yuan, accounting for 51.07% of the 2023 distributable profit.
Falling product prices squeezed industry profits, and 2023 results declined. The company has been deeply involved in the field of phosphorus chemicals for many years. The current urea production capacity is 1.56 million tons/year, diammonium phosphate production capacity is 1.26 million tons/year, and PVC production capacity is 840,000 tons/year. The production capacity is stable at the forefront of the industry. In 2023, urea, monoammonium phosphate, and polyvinyl chloride achieved sales volume of 147.60/129.60/862,300 tons respectively, which was -0.32%/-0.69%/3.64% compared with 2022, and demand remained stable. Profitability is under pressure due to falling prices of major products. In 2023, urea, monoammonium phosphate, and polyvinyl chloride achieved revenue of 31.91/45.66/4.518 billion yuan respectively, down 9.40%/18.34%/18.57% from 2022, and gross margins of 27.79%/13.73%/-8.73%, respectively, down 7.98/5.91/10.23 percentage points from 2022.
Based on the traditional competitive circuit of phosphorus chemicals and chlor-alkali chemicals, the new project brought growth. The company adopts an integrated upstream and downstream operation model, makes full use of local phosphate resources in Hubei Province, and consolidates the development advantages of traditional phosphorus chemicals and chlor-alkali chemicals. In 2023, the company will actively lay out industrial upgrading and promote the construction of major projects, investing in 200,000 tons/year refined phosphoric acid, 650,000 tons/year ammonium phosphate relocation and supporting equipment upgrade project, 200,000 tons/year caustic soda relocation and energy-saving transformation project, and 80,000 tons/year insurance powder upgrade project for comprehensive utilization of sulfur slag, which will bring new growth space to the company.
Relying on the advantages of basic chemicals, we focus on the new energy industry and transform and upgrade to the new materials industry.
Relying on the advantages of coal and phosphate basic chemicals in Tianjiahe Park in Yichang, the company focuses on the new energy industry, extends the development of materials such as lithium battery solvents and additives; uses hydrogen as a by-product to develop hydrogen purification technology, uses hydrogen power generation as a breakthrough, explores application scenarios such as hydrogen vehicles and hydrogen ships, and gradually expands the hydrogen energy industry. At the same time, the variety of photoinitiators is gradually being enriched based on the photoinitiator TPO; developing monomer resins based on existing polyols to extend the development of the green and environmentally friendly light-curing coating industry; and continuing to lay out new environmentally friendly materials industries such as polyglycolic acid PGA and carbon dioxide-based degradation material PPC in the future based on the PBAT degradable materials project.
Investment advice: Based on expectations for product price stabilization and profitability restoration, we expect the company's net profit to be 7.84/9.34/1,154 billion yuan in 2024/2025/2026, corresponding EPS of 0.74/0.88/1.09 yuan, corresponding to the current PE price of 12.3/10.3/8.3 times, maintaining a “buy” rating.
Risk warning: falling product prices, falling short of expectations in project commissioning, risk of industry overcapacity, downstream demand falling short of expectations, etc.