Profit attributable to owners of parent companies increased 25.78% year over year. The company announced its 2024 semi-annual results. In the first half of 2024, the company achieved total revenue of 12.178 billion yuan, an increase of 0.26% year on year, and profit due to parent company owners of 0.687 billion yuan, an increase of 25.78% year on year. The increase in the company's net profit was mainly due to the recovery in the chemical market, and the performance of the Group's wholly-owned subsidiaries improved markedly. The company continues to optimize production processes, strictly control energy consumption indicators, and continuously improve quality, reduce costs and increase efficiency over a long period of time. At the same time, along with the decline in raw material costs, the company's gross sales margin for the first half of 2024 was 19.53%, an increase of 2.03 pct year on year, and a net sales margin of 7.71%, an increase of 1.31 pct year on year. The company continued to optimize its debt structure. The balance ratio for the first half of 2024 was 62.7%, down 1.3 pct from the end of 2023.

By product, 1) Finished urea: Sales revenue for the first half of 2024 was 3.834 billion yuan, up 9% year on year, mainly due to full release of production capacity to help sales increase 25% year on year; gross margin of urea increased 2 pct year on year to 31% year on year, mainly due to a 15% drop in sales costs. 2) Vehicle urea solution: Sales revenue for the first half of 2024 was 0.166 billion yuan, down 26% year on year. Among them, average sales price and sales volume decreased 18% and 10% year on year, respectively, and gross margin decreased 6 pct to 18% year on year. 3) Compound fertilizer: In the first half of 2024, sales revenue increased 6% year on year to 3.41 billion yuan, mainly due to a 13% increase in sales volume and a gross margin of 6 pct to 18% year over year. 4) Methanol: In the first half of 2024, sales revenue increased 32% year on year to 1.291 billion yuan. Among them, average sales price and sales volume increased by 1% and 31% year on year, respectively, and gross margin increased by 10 pct to 8%. 5) Melamine:

In the first half of 2024, sales revenue decreased by about 4% year on year to 0.397 billion yuan, mainly due to a 6% decrease in average sales price and a 6 pct to 30% year on year gross margin. 6) DMF:

In 2024, sales revenue increased 14% year over year to 0.595 billion yuan, mainly due to a 31% year-on-year increase in sales volume and a gross margin of 2 pct to 13% year over year.

The company sold 100% of the shares in Tianxin Coal Mine. The company's holding subsidiary, Xinjiang Xinlianxin Energy Chemical Co., Ltd. (Party A), signed a share transfer agreement with Anhui Lingtong Group Holding Co., Ltd. and Xinjiang Heishi Energy Co., Ltd. (Party B). Xinjiang Xinlianxin Energy & Chemical Co., Ltd. transferred 100% of its shares in Manas Tianxin Coal Co., Ltd. to Party B at a transfer price of RMB 1.374 billion. After the transfer was completed, Party A no longer held shares in Tianxin Coal. The registered capital of Tianxin Coal Industry is RMB 0.794 billion, and all payments have been made.

Profit forecast. We expect the company's 2024-2026 EPS to be 1.18, 1.28, and 1.42 yuan respectively. Combined with comparable company valuations and AH share valuation differences, the company was given 4.02 times PE in 2024, corresponding to a target price of 4.74 yuan. Based on the HKD to RMB 0.92 exchange rate, the corresponding target price was HK$5.16 (maintenance), maintaining a “superior to market” rating.

Risk warning. Prices of raw materials and products fluctuated greatly, the progress of projects under construction fell short of expectations, downstream demand fell short of expectations, and the macroeconomic economy declined.