Incidents:

On August 20, 2024, Stanley released its 2024 semi-annual report: in the first half of 2024, the company achieved operating income of 5.672 billion yuan, up 9.04% year on year; achieved net profit attributable to shareholders of listed companies of 0.51 billion yuan, up 27.98% year on year; weighted average return on net assets was 8.04%, up 0.93 percentage points year on year. The gross profit margin on sales was 18.59%, up 1.39 percentage points year on year; the net profit margin was 8.76%, up 1.13 percentage points year on year.

Among them, the company achieved revenue of 3.044 billion yuan in 2024Q2, +41.51% year over month; realized net profit of 0.272 billion yuan, +47.40% year on year, +13.99% month on month; ROE was 4.23%, up 1.01 percentage points year on year, and 0.41 percentage points month on month. Gross sales margin was 19.61%, up 0.28 percentage points year on year, up 2.21 percentage points month on month; net sales margin was 9.02%, up 0.72 percentage points year on year, up 0.56 percentage points month on month.

Investment highlights:

Compound fertilizer volume increased sharply, and performance increased in the first half of 2024

In the first half of 2024, the company achieved net profit attributable to shareholders of listed companies of 0.51 billion yuan, an increase of 27.98% over the previous year. The company's compound fertilizer business increased both in volume and profit, and the performance achieved rapid growth. The company's sulfur-based compound fertilizer achieved revenue of 1.161 billion yuan, up 11.61% year on year, gross profit margin of 17.66%, a year-on-year decrease of 0.14 percentage points; chlorine-based compound fertilizer achieved revenue of 3.247 billion yuan, up 11.22% year on year, gross profit margin 18.75%, up 1.47 percentage points year on year; new fertilizer and phosphate fertilizer achieved revenue of 1.213 billion yuan, up 9.66% year on year, gross profit margin of 19.52%, up 1.78 percentage points year on year. In terms of period expenses, the company's sales expenses rate for the first half of 2024 was 3.63%, +0.04pct; the management expense ratio was 3.34%, +0.23pct year on year; R&D expenses rates were 3.59%, +0.40pct year on year; financial expense ratios were -0.41%, respectively, and -1.14% for the same period last year, mainly due to a decrease in bank deposit interest rates. In the first half of 2024, the net cash flow from the company's operating activities was $0.121 billion, +151.17% year-on-year, mainly due to differences in the pace of pre-payment payments over the two years. As of June 30, 2024, the company's contract debt was $1.052 billion, up 130.60% year over year.

Efficient collaboration between production, supply and marketing, 2024Q2 profit increased significantly year-on-year

With 2024Q2, the company achieved net profit of 0.272 billion yuan, +0.088 billion yuan year on year and +0.034 billion yuan month on month; realized gross profit of 0.597 billion yuan, +0.181 billion yuan year on year, and +0.139 billion yuan month on month. 2024Q2's gross profit increased significantly year-on-month. The company continuously improved its management level and improved operating efficiency through business initiatives such as real-time research on raw material price trends, flexible adjustment of production plans, dynamic adjustment of raw material inventory, continuous focus on key marketing points, and deepening trusting relationships with dealers. According to Wind data, the average price of 2024Q2 chlorine-based compound fertilizer was 2,452 yuan/ton, -8.41%, -6.40% month-on-month, and the price difference was 320 yuan/ton, -32.81% YoY, -23.74% month-on-month; the average price difference of sulfur-based compound fertilizer was 2807 yuan/ton, -3.09% YoY, -3.90% month-on-month, and -25.40%; the average price difference of monoammonium phosphate was 3045 yuan/ton, +12.75%, -1.011% Yuan/ton, +81.55% YoY, -10.95% YoY. In terms of period expenses, 2024Q2's sales expenses were 0.109 billion yuan, +0.015 billion yuan year on month; management expenses were 0.086 billion yuan, +0.009 billion yuan year on year, -0.017 billion yuan month on month; R&D expenses were 0.113 billion yuan, +0.052 billion yuan year on year, +0.022 billion yuan month on month; financial expenses were- 0.01 billion yuan, +0.022 billion yuan year over year, +0.003 billion yuan month over month. 2024Q2's other income was 0.046 billion yuan, +0.029 billion yuan year-on-year, and +0.013 billion yuan month-on-month, mainly due to an increase in value-added tax input deductions; net investment income was 0.043 billion yuan, +0.05 billion yuan year-on-year, and -0.008 billion yuan month-on-month, the year-on-year increase was mainly due to the increase in investment income of the associated enterprise Hubei Yihua Songzi Fei Industry Co., Ltd.; asset impairment losses were 0.04 billion yuan, year-on-year + 0.038 billion yuan, +0.04 billion yuan month-on-month, mainly due to an increase in impairment losses on long-term equity investments and impairment losses on fixed assets.

According to Wind data, the average price of 2024Q3 (as of August 19, 2024) chlorine-based compound fertilizer was 2506 yuan/ton, +4.20%, +2.17% month-on-month, price difference was 273 yuan/ton, -1.52%, and -14.75% month-on-month; the average price of sulfur-based compound fertilizer was 2,850 yuan/ton, +4.17%, +1.53% month-on-month, and the price difference was 206 yuan/ton, -20.09% month-on-month; the average price of monoammonium phosphate was 3,364 yuan/ton, +20.37%, ring Compared to +10.50%, the price difference was 921 yuan/ton, +61.97% year-on-year, and +50.71% month-on-month. The third quarter entered the peak autumn fertilizer season, and the prices of urea and potash fertilizer declined, while the prices of monoammonium phosphate and compound fertilizer increased steadily. The company has a monoammonium phosphate-compound fertilizer industry chain, and is optimistic about the company's quantitative profit growth.

The phosphorus chemical project is about to be put into operation, and the supply capacity of phosphate fertilizer raw materials is expected to enhance the smooth progress of the company's “North-South Phosphorus Chemical” project. The Lihe Fertilizer Industry's new construction and expansion project was completed and put into use at the end of 2023. The first half of the year is in the production capacity climbing phase. After the Lihe Fertilizer Project is fully put into operation, it will have an annual production capacity of 0.6 million tons of ammonium phosphate, 0.3 million tons of spray-coated sulfur-based compound fertilizer, and 0.06 million tons of water-soluble fertilizer. The project will cover most of the markets in Northeast China and Central Plains. It can not only meet the company's supply of phosphate fertilizer raw materials in the northern region, but also fill the gap in the company's spray-coated sulfur-based compound fertilizer products in the northern market. The construction work of iron phosphate, a precursor of new energy materials, and its supporting projects is progressing in an orderly manner. 0.4 million tons/year new special fertilizer plant, 1.8 million tons/year mineral processing unit, 1.2 million tons/year sulfur acid production unit, 0.3 million tons/year wet phosphoric acid device, 0.4 million tons/year multi-element acidic physiological fertilizer device, 1.5 million tons/year phosphogypsum purification device, 0.05 million tons/year high-grade flame retardant fire fighting materials The device has passed stand-alone testing, joint commissioning and joint testing, and has entered the trial production stage. The construction of the Hubei Gold Storage Phosphogypsum Depot project is also being actively promoted. Currently, the first phase of the phosphogypsum database project has been completed, and the western storage area is ready for use. The successful commissioning of the Lihe Fertilizer Project and the Hubei Songzi Project and the achievement of benefits will effectively reduce the company's production costs, increase product sales, and further enhance the company's operating performance.

Profit forecasts and investment ratings

We expect the company's revenue for 2024-2026 to be 10.7, 12.3, and 13.4 billion yuan, respectively, and net profit to mother of 0.895, 1.078, and 1.285 billion yuan, respectively, corresponding to PE 8.93, 7.42, and 6.22 times, respectively. Based on the main compound fertilizer business, the company has formed a significant competitive advantage in the fields of brand power, marketing channel construction, new product research and development, agrochemical services, etc. At the same time, the company actively promotes the construction of phosphorus chemical projects, forms a complete industrial chain of phosphorus chemicals - phosphate fertilizer - compound fertilizer, and maintains a “buy” rating.

Risk warning

Risk of macroeconomic fluctuations; production capacity investment falling short of expectations; risk of product price fluctuations; risk of fluctuations in raw material prices; decline in future demand; progress of new projects falling short of expectations.