Rating and target price: We initially gave a “buy” rating. The target price was HK$5.70, corresponding to price-earnings ratios of 5.2 times, 4.9 times, and 4.3 times for 2024/2025/2026, respectively.

Our view: 1) Competition in the high-end compound fertilizer market is less intense than expected. 2) The growth potential of overseas markets has been underestimated.

Investment theme: Affected by environmental regulations and rising production costs in the coal-based industry, China's chemical fertilizer market is shifting to high-quality compound fertilizer. Despite a decrease in total agrochemical fertilizer application in 2022, the amount of compound fertilizer applied increased by 8.9%. With its technological and cost advantages, China Heart Link Fertilizer is in a unique position to grasp this transformation, which will enable it to expand its market share in industry consolidation and achieve higher revenue and net profit growth than its peers.

Catalysts: 1) The 2024-2026 expansion plan will drive growth.

Risk factors: 1) Fluctuations in raw material prices may damage gross profit margins; 2) Competition within the fertilizer industry may remain intense.