Net profit after deduction in 2023 increased 55.82% year-on-year, and the company plans to distribute a total of about 150 million yuan in cash dividends. In 2023, the company achieved operating income of 99.91 billion yuan, a year-on-year increase of 10.54%, net profit to mother of 701 million yuan, an increase of 58.94% year-on-year, and net profit after deduction of 632 million yuan, an increase of 55.82% over the previous year. The increase in the company's revenue is mainly due to the increase in sales volume of the company's fertilizer products. At the same time, due to the proper implementation of the company's raw material procurement, inventory management strategies, and sales pricing strategies, the gross profit level of the company's products has increased. The company achieved operating income of 2,629 billion yuan in the first quarter of 2024, up 10% from the previous year, down 13.86% year on year, net profit to mother of 238 million yuan, up 96.85% from the previous month, up 11.27% year on year, net profit after deducting 208 million yuan, up 155.57% month on month, up 0.17% year on year. In 2023, the company plans to distribute a cash dividend of 1.30 yuan (tax included) for every 10 shares to all shareholders registered on the share registration date, for a total cash dividend of about 150 million yuan.

By product: In 2023, the company achieved production of 3.3914 million tons of phosphorus compound fertilizer, an increase of 24.32% over the previous year, and sales volume of 3.1314 million tons, an increase of 16.93% over the previous year. The sharp increase in sales of the company's products is mainly due to the recovery and stability of grain prices, which have played a certain supporting role in downstream demand, as well as better control of procurement costs and raw material inventory costs. 1) Sulfur-based compound fertilizer, revenue in 2023 was 2,041 billion yuan, up 34.07% year on year, and gross margin increased 3.08 pct year on year to 17.39%. 2) Chlorine-based compound fertilizer, revenue in 2023 was 5.875 billion yuan, up 6.95% year on year, and gross margin increased 3.27pct year on year to 17.28% year on year. 3) New fertilizers and others, revenue in 2023 was 1,892 billion yuan, up 1.15% year on year, and gross margin increased 3.80 pct year on year to 18.49% year on year.

Projects under construction continue to advance, driving performance growth. By the end of 2023, the company had a compound fertilizer production capacity of 5.5 million tons/year, and a 400,000 tons/year spray sulfur-based compound fertilizer plant in the new construction project of Songzi New Materials Company is under construction. The company has a monoammonium phosphate production capacity of 100,000 tons/year. A monoammonium phosphate plant with an annual output of 500,000 tons in the Lihe Fertilizer Industry construction project and a 400,000 ton monoammonium phosphate plant in the new construction project of Songzi New Materials Company are under construction. The company has an industrial-grade monoammonium phosphate production capacity of 20,000 tons/year. An industrial-grade monoammonium phosphate plant with an annual output of 60,000 tons in the Lihe Fertilizer Industry construction project and an industrial-grade monoammonium phosphate plant with an annual output of 100,000 tons in the new construction project of Songzi New Materials Company are under construction. In terms of refined phosphoric acid products, a refined phosphoric acid plant with an annual output of 100,000 tons in the new construction project of Songzi New Materials Company is under construction. In terms of iron phosphate products, an iron phosphate plant with an annual output of 50,000 tons in the new construction project of Songzi New Materials Company is under construction.

Profit forecast. Due to the increase in the company's sales volume, we have raised our profit forecast. We expect the company's 24-26 EPS to be 0.68 yuan/share (+4.62%), 0.77 yuan/share (+2.67%), and 0.90 yuan/share (new), respectively. Referring to comparable companies, the company will be given 12.43 times PE in 2024, with a corresponding target price of 8.45 yuan (maintenance), maintaining the “superior to the market” rating.

Risk warning. Project construction progress falls short of expectations, prices of raw materials and products fluctuate greatly, safety and environmental risks, and macroeconomic decline.