Incident: The company released its 2023 annual report. During the reporting period, it achieved operating income of 28.11 billion yuan, down 7.3% year on year, net profit of 1.38 billion yuan, down 76.44% year on year, after deducting non-net profit of 1.31 billion yuan, down 73.8% year on year; of these, it achieved revenue of 6.18 billion yuan in a single quarter, up 13.3% year on year, and net profit of 445 million yuan year on year, up 36.9% month on month.

The agrochemical and silicone industry experienced a sharp decline, and annual performance declined markedly. During the reporting period, due to changes in macroeconomics and market supply and demand, the market sentiment of the company's agrochemical sector and silicone sector declined markedly, and sales prices of products such as glyphosate raw drugs and silicone DMC declined to varying degrees year-on-year, leading to a marked decline in profit levels. In 2023, the company's specialty chemicals revenue was 5.03 billion yuan, down 19.3% year on year, gross profit margin 20.73% year on year, down 17.5 pct year on year, average sales price 11,200 pct year on year, down 28.51% year on year; glyphosate series product revenue was 4.28 billion yuan, down 50.6% year on year, gross profit margin down 31.0% year on year, down 21.7 pct year on year, average sales price 25,000 yuan/ton, down 55.3% year on year; fertilizer revenue was 3.61 billion yuan, up 4.6% year on year, gross profit margin was 8.70% year on year down year on year At 10.4 pct, the average sales price was 2,909 yuan/ton, down 14.7% year on year; the revenue of silicone series products was 2.14 billion yuan, down 48.1% year on year, gross profit margin was 4.3%, down 13.2 pct year on year, and the average sales price was 11,400 yuan/ton, down 38.6% year on year.

Prices of some products rose in the fourth quarter, driving a sharp increase in performance from month to month. The average market prices of 2023Q4's main products yellow phosphorus, monoammonium phosphate, diammonium phosphate, phosphate ore, silicone DMC, and sodium hexametaphosphate rose 2.0%, 18.9%, 6.5%, 10.3%, 5.6%, and 0.1%, respectively, in 2023Q3; the average prices for glyphosate and sodium tripolyphosphate fell 13.7% and 1.4%, respectively. Recently, the phosphate ore market has continued to be booming. The price of monoammonium phosphate has declined, the price of diammonium phosphate has remained stable, the bottom of the glyphosate market has gradually rebounded steadily, and the silicone market has retreated to the bottom area after a phased rebound.

The company's key projects are progressing steadily, and future growth attributes will continue to increase. During the reporting period, the company focused on the construction of key projects to promote the transformation and upgrading of the company. Xingfu Electronics' 30,000 tons/year electronic-grade phosphoric acid and 20,000 tons/year electronic-grade etching solution project was completed and put into operation, and the company's comprehensive strength in the new microelectronic materials industry continued to increase; Hubei Ruijia 50,000 tons/year photovoltaic glue, Hubei Xingyou 300,000 tons/year battery-grade iron phosphate project (phase I), the participating company Hubei Phosphorus Fluoride Lithium Industry 200,000 tons/year battery-grade lithium dihydrogen phosphate and 10,000 tons/year high-quality lithium phosphate project (phase I) was successfully put into operation, and the company's new energy industry layout was fully advanced; Hubei Xingrui's 550 tons/year microcapsules and microcapsules 5000m3/year aerogel felt Hubei Jixing's 800 tons/year phosphating agent production capacity was put into operation one after another, cultivating new profit growth points for the company. Houping's 2 million tons/year phosphate ore beneficiation and pipeline transportation project, the Yidu Xingfa wet phosphoric acid refining technology transformation project, and the Hubei Xingrui 30,000 tons/year liquid glue (phase I) project are progressing at an accelerated pace. After completion, they will further strengthen the company's industrial base and enhance the company's development momentum.

Maintain an “overweight” investment rating. Since the prices of some products are still consolidating at the bottom, we have adjusted our profit forecasts. We expect net profit to be 1.83 billion yuan, 24.10 billion yuan, and 2.78 billion yuan respectively for 2024-2026, and EPS of 1.66, 2.18, and 2.52 yuan respectively. The current stock price corresponds to PE of 13, 10, and 9 times, respectively, maintaining the “increase” investment rating.

Risk warning: downstream demand falls short of expectations, product prices fall, and the commissioning of new projects falls short of expectations