Incident: The company released its 2024 three-quarter report. 2024Q1-3 achieved operating income of 22.05 billion yuan, +0.04% year over year; realized net profit to mother of 1.314 billion yuan, +37.85% year over year; realized deducted non-net profit of 1.269 billion yuan, +44.35% year over year. Among them, 24Q3 achieved operating income of 8.646 billion yuan, +3.54%/+32.69% year over month; realized net profit of 0.509 billion yuan, +52.73%/+20.26% year over month respectively; and realized deducted non-net profit of 0.514 billion yuan, +55.81%/+29.71% year over month respectively.

Judging from the operating data:

1) 2024Q1-3's pesticides/fertiliser/specialty chemicals/silicone sector achieved revenue of 40.03/3.971/1.858 billion yuan respectively, achieving sales volume of 18.72/0.9624/0.3827/0.1736 million tons (year-on-year data was not shown due to changes in the company's statistical category caliber); average sales prices were -16.8%/+6.1%/-8.3%/-9.4%, respectively. Apart from the year-on-year correction of the average sales price in the fertilizer sector, prices in the other three sectors remained unchanged A state of low consolidation. Overall, demand for the company's main products showed a clear recovery trend.

2) Looking at the third quarter alone, the company's pesticides/fertiliser/specialty chemicals/silicone sector achieved sales volume of 6.25/0.2996/0.1333/0.0682 million tons respectively, -6.0%/-20.3%/+1.2%/+26.8% month-on-month. Among them, production and sales in the silicone sector increased significantly, and demand in the specialty chemicals sector continued to grow steadily, while the agrochemicals sector experienced a month-on-month decline due to factors such as delays in spring farming in Q2. In addition to the above four sectors, the company's other businesses, such as phosphate ore and yellow phosphorus, contributed a total revenue of about 4.27 billion yuan in Q3, a significant increase over 2.01 billion yuan in Q3. The Q3 volume and price of the company's core phosphorus chemical products may have contributed positively, and the comprehensive utilization benefits of the company's phosphate resources are reflected.

3) 24Q1-3 achieved gross margin/net sales margin of 17.96%/6.02%, of which Q3 achieved gross margin/net sales margin of 18.86%/6.01%, +6.25/+1.83PCT year over year, and -1.62/-0.53PCT, respectively. We believe that the year-on-year recovery in profit margins mainly comes from an increase in unit profit due to an increase in operating rate and sales volume under the recovery in product demand, and a boost to the overall efficiency of the entire industry chain; gross margin declined month-on-month or was affected by fluctuations in product prices, while net interest rates benefited from a decrease in Q3 tax expenses and accrued impairment, which declined only slightly from month to month.

Xingfu Electronics' IPO was approved by the Securities Regulatory Commission, and the company actively transformed and upgraded to a new chemical materials enterprise. After the market on October 17, the company announced that the holding subsidiary Xingfu Electronics's IPO application has been approved by the Securities Regulatory Commission. According to its prospectus, in 2023, Xingfu Electronics achieved revenue/net profit of 0.878/0.124 billion yuan respectively; 2024Q1-3 is expected to achieve revenue of 8.06 to 0.846 billion yuan, +27.1% to +33.4% year over year, and expected to achieve net profit of 1.29 to 0.135 billion yuan, +23.6% to +29.4% year over year. It has sufficient orders and good operating conditions. It plans to raise funds to build 0.1 million tons/year electronic grade chemicals and R&D center projects. We are optimistic that Xingfa Group will continue to deepen its R&D achievements and implementation and transformation, and actively transform and upgrade to a new chemical materials enterprise. It is expected that in the medium to long term, it will rely on the advantages of industrial chain integration to achieve a steady increase in the profit center.

Investment advice: Based on the company's latest performance and changes in price spreads of main products, we adjusted the company's net profit forecast for 2024-2026 from 1.876/2.364/2.624 billion yuan to 1.841/2.36/2.576 billion yuan, corresponding to the current PE 13.9x/10.8x/9.9x, respectively. Referring to the company's 5-year historical valuation center, we gave a target PE of 15 times in 2025, corresponding to a target price of 32.10 yuan, maintaining a “strong” rating.

Risk warning: Project progress falls short of expectations; international oil prices fluctuate greatly; changes in safety and environmental protection policies.