The importance of food security is becoming more and more prominent, helping to drive consumer demand for compound fertilizer; stabilizing the price of single fertilizer helps to recover profits, and the new fertilizer market has broad prospects; the supply pattern of the monoammonium phosphate industry has been optimized, and the Group's phosphate ore injection enhances the competitive advantage.

The importance of food security is becoming more and more prominent, helping to drive the demand for compound fertilizer consumption. In recent years, due to multiple factors such as regional conflicts, the El Niño phenomenon, and protectionist policies in some food-producing countries, the importance of food security has become increasingly prominent. China's compound fertilizer market is in high demand, and the company has broad scope for future development. The 2024 Central Committee Document No. 1 puts “ensuring national food security” first. It is expected that the food price center will move upward in the future, continuing to drive fertilizer consumption demand. In recent years, prices of bulk raw materials have fluctuated greatly and environmental requirements have become stricter. The concentration of the compound fertilizer industry has continued to increase, enterprises with resource and channel advantages have remarkable advantages, and land circulation has also brought good development opportunities to leading compound fertilizer enterprises.

Stabilizing the price of monomer fertilizer will help restore profits, and the new fertilizer market has broad prospects. The sharp rise and fall in single fertilizer over the past three years has had a serious impact on the production and sale of compound fertilizer. At present, the price differences of monomer fertilizer are at the bottom of history. The stabilization of the price of monomer fertilizer will create a favorable market environment for the production and sale of compound fertilizer companies and normal procurement by compound fertilizer dealers. Compound fertilizer companies will also benefit from the return to normal in the industry, which is expected to usher in a quantitative recovery. With the gradual upgrading of residents' dietary structure and nutritional needs, new fertilizers that focus on the needs of increased nutrients, improved function, reduction and efficiency, quality improvement, soil improvement, and environmental friendliness will have broad market prospects. Their profitability is higher than that of conventional compound fertilizers. New fertilizers are a high point of competition for large compound fertilizer companies, especially leading companies.

The supply pattern of the monoammonium phosphate industry has been optimized, and the Group's phosphate ore injection enhances competitive advantage. In recent years, various departments of the country have successively introduced a number of “triphosphorous remediation” related policies. Industry entry conditions and pollutant prevention and control standards have been continuously improved, production capacity has been significantly cleared behind the supply side of ammonium phosphate, and leading enterprises with obvious environmental advantages, strong financial strength, and outstanding resource advantages will benefit significantly. The controlling shareholder's phosphate ore was gradually injected into the company. In July 2021, the controlling shareholder injected Leibo Xinyangfeng Mining Co., Ltd. into the company and promised to inject the shares of Jingmen Fangmashan Zhongphosphate Mining Co., Ltd. into the company (Lianhuashan Mine); in July 2022, the controlling shareholder injected 100% of Baokang Zhuyuangou Mining's shares into the company. The total production capacity of the above two mines reached 3.3 million tons/year. If successfully injected and put into operation, it will help enhance the company's industrial chain integration advantages and greatly increase profit levels.

Give it a “Highly Recommended” investment rating. The company's net profit for 2024-2026 is estimated to be 1.33 billion yuan, 1.56 billion yuan, and 1.88 billion yuan, EPS is 1.06, 1.24, and 1.50 yuan, respectively. The PE corresponding to the current stock price is 11.5, 9.8, and 8.1 times, respectively. First coverage, giving a “Highly Recommended” investment rating.

Risk warning: The price of raw materials fluctuates greatly, the volume of products falls short of expectations, and the commissioning of new projects falls short of expectations.