Introduction to this report:

The company's potash sales increased significantly in the second quarter, and Huineng's shareholding is expected to inject new momentum into the company.

Key points of investment:

Maintain an “Overweight” rating. The company's potash sales increased markedly in the second quarter, while net interest rates recovered markedly month-on-month. Huineng Group's shareholding is also expected to help the company smoothly expand production capacity.

Maintaining the profit forecast, EPS for 2024-2026 is expected to be 0.94 yuan, 1.19 yuan, and 1.45 yuan, respectively, maintaining the target price of 18.85 yuan, maintaining an increase in holdings rating.

Semi-annual results are in line with expectations. According to the company's announcement, the first half of 2024 achieved operating income of 1.698 billion yuan, a year-on-year decrease of 16.03%, and realized net profit to mother of 0.27 billion yuan, a year-on-year decrease of 62.32%. Among them, revenue for the second quarter was 1.064 billion yuan, down 8.82% year on year, up 68.09% month on month, and realized net profit of 0.189 billion yuan to mother, down 50.40% year on year and 132.56% month on month. The gross profit margin for the second quarter was 46.66%, down 6.43 pcts from month to month, while the net profit margin of 17.09% increased 5.63% month-on-month. We think it was mainly due to the decline in depreciation and amortization costs per ton due to increased sales volume.

Huineng Group's premium shareholding is expected to help release the company's production capacity. On July 31, 2024, the company announced that Guofu Investment agreed to transfer shares to Huineng Group at a transfer price of 17.53 yuan/share.

According to Huineng Group's official website, Huineng Group has now formed 50 million tons of coal, 1.53 million kilowatts of electricity, 1.6 billion cubic meters of coal-to-gas and liquefaction production capacity; in addition, there are 35.4 million tons/year of coal, 2.6 million tons/year of new materials, 1.32 million kilowatts of thermal power, 1.1 million kilowatt photovoltaics, and 0.07 million tons of aluminum-silicon alloy production capacity under construction. As an industrial giant with rich mining experience, Huineng Group's investment is expected to bring new vitality to the company's mineral construction.

Catalysts: rising potash prices, accelerated production capacity construction, etc.

Risk warning: Capacity construction progress falls short of expectations, potash prices are falling, etc.