Net profit after deducting 2024H1 increased by 47.93% year-on-year, and the volume and price of major products rose sharply. The company released its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 4.025 billion yuan, a year-on-year increase of 10.10%, net profit to mother of 0.294 billion yuan, a year-on-year increase of 26.68%, and net profit after deduction of 0.285 billion yuan, an increase of 47.93% over the previous year. The increase in the company's performance mainly benefited from a sharp rise in product volume and price. The company's expense ratio decreased by 1.93 pct to 7.63% year on year in the first half of the year. Among them, the management fee ratio decreased by 0.28 pct to 3.69% year on year, the R&D expense ratio decreased by 1.33 pct to 1.73% year on year, and the financial cost ratio decreased by 0.34 pct year on year to 0.93% year on year.

With 2024Q2, the company achieved operating income of 2.353 billion yuan, a month-on-month increase of 40.79%, a year-on-year increase of 41.74%, net profit of 0.19 billion yuan, a year-on-year increase of 83.66%, a year-on-year increase of 133.05%, after deducting net profit of 0.185 billion yuan, an increase of 85.97% month-on-month and a year-on-year increase of 558.10%.

By product: 1) Industrial grade ammonium phosphate. The company produced 0.2155 million tons in the first half of the year, up 29.35% year on year, operating income was 0.936 billion yuan, up 0.27% year on year, gross profit margin 26.89%, up 0.36 pct year on year. 2) Fertilizer series products. The company's fertilizer series products mainly include monoammonium phosphate, compound fertilizer and other products. The output in the first half of the year was 0.6307 million tons, up 9% year on year, operating income was 2.136 billion yuan, up 20.43% year on year, gross profit margin was 11.16%, down 2.2 pct year on year. 3) Feed grade calcium hydrogen phosphate. The output in the first half of the year was 0.168 million tons, which was basically the same. Operating income was 0.453 billion yuan, up 0.99% year on year, gross profit margin 19.82%, up 4.56 pct year on year.

The company adheres to the integrated mineralization development model and increases the ability to guarantee and supply upstream resources. In terms of phosphate ore, the company has three major mines, Mabian, Baokang and Mianzhu, which are rich in phosphate resources, with total reserves of about 0.13 billion tons. After the company's Tianrui Mining and Baizhu Phosphate Ore reach production and Mianzhu Banshengzi phosphate mine resume production and reach production, the company will have an annual production capacity of 4.1 million tons of phosphate ore. In terms of calcium ore, Nanzhang Longpython, a wholly-owned subsidiary of the company, obtained mining rights for limestone ore for construction stone in the Guojiawan mining area. The production scale is 1 million tons/year for limestone ore, which will effectively increase the raw material reserves of Nanzhang Longpython ore, which is conducive to improving “integrated mineralization” capabilities and market competitiveness.

Steadily promote new energy materials projects to create a second growth curve. Relying on advantages such as resource facilities, industrial base and energy consumption, the company continues to promote the implementation of new energy materials incremental projects in Germany and Panzhihua to cultivate new profit growth points for the company. The first 0.02 million-ton lithium iron phosphate plant of the German-Arab project has been completed and put into operation, and small-batch sales have been achieved. The 0.04 million-ton lithium iron phosphate plant is undergoing equipment installation, and stand-alone commissioning is expected to begin within the year; the main building of the first 0.05 million ton iron phosphate plant in the Panzhihua project has been completed, and equipment is being installed.

Profit forecasting and investment ratings. Due to the decline in profit in '23, we lowered our profit forecast for the company. We expect the company's 2024-2026 net profit of 0.609 billion yuan (-57%), 0.702 billion yuan (-63%), and 819 million yuan (increase), corresponding to EPS of 0.32 yuan, 0.37 yuan, and 0.43 yuan, respectively. Referring to the valuation of comparable companies in the same industry, the 2024 PE was given 26 times, and the corresponding target price was 8.32 yuan (corresponding to 1.67 times PE, -34%), maintaining an superior market rating.

Risk warning: Production expansion projects fall short of expectations; risk of downstream demand falling short of expectations; risk of rising raw material prices.