The incident company released its annual report for 2023 and the first quarter report for 2024. In 2023, the company achieved total revenue of 3,898 billion yuan, an increase of 12.45% year on year; net profit to mother was 1,235 billion yuan, a year-on-year decrease of 39.12%. In the first quarter of 2024, the company achieved operating income of 633 million yuan, a year-on-year decrease of 25.89%; net profit to mother was 81 million yuan, a year-on-year decrease of 75.82%.

The decline in potash prices is compounded by increased taxes and fees. Since 2023, the company's profits have been under pressure. Since 2023, global potassium chloride prices have fluctuated and declined as the supply and demand structure of potassium chloride shifts to easing and downstream demand weakens. In 2023, the company's sales volume of potassium chloride was 1.6062 million tons, up 76.47% year on year; the average sales price was about 2,398 yuan/ton, down 35.81% year on year; gross sales margin was 58.72%, down 14.01 percentage points year on year; and net sales margin was 31.04%, down 27.46 percentage points year on year. The sharp drop in the price of potassium chloride was the main reason for the company's profit decline in 2023. In addition, due to the increase in the company's depreciation and amortization, operating expenses, share payment expenses, employee compensation, interest expenses, exchange gains and losses, and new R&D projects, the company's four-fee expenses increased by 391 million yuan year-on-year in 2023. At the same time, due to the 7% tariff imposed by Laos on potassium chloride exports from October 1, 2023, the company's tonne product costs and tax expenses increased, further hampering the company's profit performance. In the first quarter of 2024, the price of potassium chloride fell further as the trend of easing supply and demand continued. According to data from Zhuochuang Information, the average price of potassium chloride (60% white potassium) in Qingdao Port was 2344.34 yuan/ton (tax included) in 24Q1, down 32.98% year on year and 16.54% month on month. At the same time, due to factors such as increased export tariffs and management expenses, the company's 24Q1 profit pressure further increased, and the net sales interest rate fell to 11.46%.

Potassium chloride stocks are under high pressure. Prices may continue to fluctuate in Q2. According to data from the General Administration of Customs and Zhuochuang Information, China's cumulative imports of potassium chloride from January to January were 3.836,800 tons, an increase of 49.19% over the previous year. As of March 31, China's social stocks and port stocks of potassium chloride were 700 and 3.79 million tons respectively, all at high levels in the same period in history. As the supply of potassium chloride continues to be relaxed and inventory pressure is high, it may increase the manufacturer's shipping mentality, thereby suppressing the price trend in the potassium chloride market. In addition, considering April-May as the fertilizer stage for spring farming in China, the market is mostly dominated by consumption stocks, and enthusiasm for potash fertilizer replenishment will gradually decline. It is expected that the price of potassium chloride will maintain a volatile trend in 24Q2.

The third million-ton project was successfully put into trial, waiting for the release of the company's production capacity to increase performance. According to the current situation, the company expects to complete it within 2 #主斜井的治水与修复工作可能在2024 and complete the mine in the fourth quarter of 3 #主斜井将于2024. On April 7, 2024, the company's third million-ton project in the Xiaodongbu mining area in Laos was successfully put into trial production. It is expected that the maximum production capacity will reach 1.8 million tons/year during the commissioning phase. Based on the successful experience, the company carried out in-depth technical process optimization and upgrading of the grinding, crystallization concentration, flotation and filtration units of the project. The crystal size and whiteness of the potash fertilizer produced were all improved, and the overall yield of the product was improved, which can effectively help the company achieve cost reduction and efficiency.

At the same time, the company has reserved space for two additional 1 million tons/year production capacity at the infrastructure construction level, providing good prerequisites for the company to achieve the goal of the “100 Year Project” for potash fertilizer.

The investment proposal takes into account that the volume of the second and third million-ton potash projects was lower than expected, and at the same time, the price of potash fertilizer declined, so we lowered the company's profit forecast. The company's revenue for 2024-2026 is expected to be 37.07 billion yuan, 77.31 billion yuan and 10.172 billion yuan, respectively, with year-on-year changes of -4.90%, 108.56%, and 31.58%; net profit to mother will be 8.54, 17.30, and 2,295 billion yuan, respectively, with year-on-year changes of -30.83%, 102.46%, and 32.69%; EPS will be 0.92, 1.86 and 2.47 yuan/share, respectively, corresponding PE of 20.78, 10.26 and 7.73 times, respectively.

Maintain a “Recommended” rating.

Risks indicate the risk that downstream demand falls short of expectations, the risk of rising potash mining costs, and the risk of new construction projects falling short of expectations.