The company's main business operations are steady, and performance resilience is prominent. In the first three quarters of 2024, revenue decreased by 2.78% year on year, and net profit to mother decreased by 6.36% year on year. The company released its third quarter report. In the first three quarters of 2024, the company achieved operating income of 15.697 billion yuan (YoY -2.78%), net profit of 0.669 billion yuan (YoY -6.36%), and net cash flow from operating activities of 0.834 billion yuan (YoY +61.97%); of these, revenue for the third quarter of 2024 was 4.691 billion yuan (-13.02% YoY), net profit to mother 0.215 billion yuan (YoY + 5.93%). Production and sales of the company's main product, phosphorus compound fertilizer, both increased, and gross profit increased slightly; the alkali business was impacted by increased upstream supply and weak downstream demand, and gross profit and sales declined to varying degrees; the yellow phosphorus business was affected by poor downstream demand in the first half of the year, but operations returned to normal levels since the third quarter.

The company continues to improve the upstream nitrogen and phosphorus industry chain around phosphorus compound fertilizer. The company's product costs are expected to continue to decline, and the advantages of integrated layout will continue to show.

The pressure on the cost of compound fertilizer raw materials has eased, and profit margins are expected to pick up in the future; as macroeconomic stimulus policies continue to be implemented, soda ash prices are expected to stabilize; yellow phosphorus has now returned to normal profit levels. Judging from the cost composition, the three basic fertilizers used as raw materials account for about 90% of the production cost of compound fertilizer, which directly affects the price of compound fertilizer. In the first half of 2024, the cost side squeezed the profit margin of compound fertilizer, but since the third quarter, the price of compound fertilizer raw materials has declined, and theoretical gross profit margins are expected to continue to rise; in the first three quarters of 2024, natural alkali production capacity continued to be put into operation, and the price of soda ash continued to shift downward. Since late September, favorable macroeconomic policies have continued to be released. As economic fundamentals improve, soda ash prices are expected to stabilize; since the third quarter, downstream demand has improved, the price of yellow phosphorus has gradually risen, and the profit level of yellow phosphorus has returned to normal levels.

The company continues to improve its self-supply capacity for nitrogen fertilizer and phosphate fertilizer, and the profit margin for compound fertilizer is expected to continue to increase. In terms of self-supply of raw materials, the company is making every effort to promote the construction of the 0.7 million ton ammonia synthesis project at the Hubei Yingcheng base. The main project has entered a substantial stage. After completion, the project will effectively fill the gap in nitrogen fertilizer raw materials and increase resource self-sufficiency.

The company has mining rights for the eastern section of the Ajluoxia phosphate mine and the Niuniuzhai North phosphate deposit area in Leibo County, Sichuan Province, and prospecting rights for the western section. In addition, the company is preparing the Shatuo sandstone mine project. In the future, after production is put into operation, it will be self-sufficient in silicon ore required for yellow phosphorus production, further reducing production costs.

Risk warning: raw material prices fluctuate; downstream demand falls short of expectations; project progress falls short of expectations, etc.

Investment advice: The company currently has a compound fertilizer production capacity of 7.2 million tons, and is also equipped with monoammonium phosphate production capacity, which is relatively leading. The company has built a complete industrial chain from upstream phosphate resources to downstream nitrogen fertilizer other than urea, and is actively building ammonia synthesis projects and upstream phosphate ore, and the industrial chain continues to improve. Currently, the country is encouraging an increase in the area under cultivation. On the basis of the area of cultivated land and stable food prices and quantity, the overall demand for compound fertilizer may rise steadily. Currently, the operating rate and inventory of compound fertilizer are at a low level. The pressure on raw material costs has been relieved, theoretical gross profit has been restored, and profit margins are expected to pick up in the future. We expect the company's net profit to be 0.91/1.14/1.5 billion yuan for 2024-2026, corresponding EPS of 0.75/0.94/1.24 yuan, respectively, and the PE corresponding to the current stock price is 10.76/8.59/6.51. Maintain an “better than the market” rating.