Rating and TP: We initiate with a rating of "Buy" and a target price of HK$5.70, representing 2024/ 2025/ 2026 PER of 5.2x/ 4.9x/ 4.3x.

Our Views: 1) Competition in high-end compound fertiliser market is less intense than anticipated. 2) Growth potential of overseas markets has been underestimated.

Investment Theme: China's fertiliser market is shifting towards high-quality compound fertilisers due to environmental regulations and rising production costs in coal-based industries. The use of compound fertilisers increased by 8.9% in 2022, despite reduced overall fertiliser usage. China XLX Fertiliser (CXLX) is uniquely positioned to capture the shift with its technological and cost advantages, which will enable it to expand market share amid industry consolidation, achieving a higher revenue and net profit growth compared with its peers.

Catalyst(s): 1) Expansion plans for 2024-2026 to fuel growth.

Risk Factor(s): 1) Price volatility of raw materials may hurt gross margin, 2) Competition is likely to remain intense within the fertiliser industry.