Core views

Since 2024, the price of soda ash has continued to decline, and by the end of the third quarter, the price was close to the low compared to the beginning of the year. However, the company still achieved 0.596 billion net profit in the third quarter, and the net profit margin still reached 18%, and the company's performance in the first three quarters showed almost no fluctuation. The reason behind this was the continued release of Alashan alkali ore and continued cost reduction. As a scarce natural alkali leader in China, the company's cost advantage in the domestic alkali industry is increasing. Furthermore, in the future, the company's Alashan Phase II project is also expected to be gradually put into operation, further enhancing the company's long-term value.

occurrences

2024 three-quarter report: In the first three quarters, the company achieved total revenue of 10.372 billion yuan, +29.04% year over year; net profit to mother of 1.805 billion yuan, +19.84% year over year.

The announcement for the third quarter of a single quarter achieved net profit of 0.596 billion yuan, +31.30% year over year and -6.94% month over month.

Brief review

During the decline in soda ash, the performance remained highly steady. Cost reduction and volume were effective. Although the company's third-quarter results seemed to decline month-on-month, it was actually very difficult:

Since 2024, domestic soda ash prices have continued to decline. The domestic market price (Zhuochuang) dropped all the way from 2,800 yuan/ton at the beginning of the year to 1,500 yuan/ton at the end of the third quarter, almost falling; however, the company's Q1-Q3 profit changed almost nothing, which is clearly better than the same level in the same industry.

The reason for this should be mainly due to the gradual expansion of the company's Yuanxing Alashan production capacity and the gradual decline in costs: the Alashan Phase I natural alkali project has huge production capacity, and since it was put into operation last year, it has been a gradual process of scaling up. The reduction in cost may also be an important guarantee for steady performance: ① The cost of Alashan alkali is lower than the cost of the company's original chemical alkali, so the company's comprehensive cost of soda ash gradually declined as the amount of alkali was gradually released; ② as arabine was gradually released, equipment depreciation and hot costs were gradually diluted, and there were also no many expenses related to unplanned maintenance, and the average cost of Alashan's subsidiary itself continued to decrease.

The first phase of the Alashan project was successfully put into operation. The second phase of the project is being launched in an orderly manner. It is currently the largest proven natural alkali mine in China. The amount of resource ore and recoverable reserves are 1078.364 million tons and 29.6901 million tons, respectively, which is far higher than the sum of the amount of resource ores and recoverable reserves currently held by the company's three natural alkali mining areas in Tongbai, Henan, Wucheng, and Inner Mongolia. The first phase plans to build 5 million tons/year of soda ash and 0.4 million tons/year of baking soda; the second phase plans to build 2.8 million tons/year of soda ash and 0.4 million tons/year of baking soda. A total of four production lines have been built in the first phase of the project. Currently, apart from occasional accidents, the company's four production lines have basically achieved production results.

The second phase of the project is planned to invest about 5.5 billion yuan and is scheduled to be completed in December 2025. The rich resource reserves in the Alashantaxylline Natural Alkali Mining Area can guarantee the company's long-term development. With the gradual release of the project's production capacity, it will boost confidence in the company's future performance and create long-term value for the company.

Profit forecast and valuation: The company is expected to achieve net profit of 2.317, 2.619, and 3.082 billion yuan in 2023, 2024, and 2025, respectively, corresponding to 11X, 10X, and 8X PE, respectively, and maintain the purchase rating.

Risk warning: 1. The company's project capacity commissioning progress falls short of expectations. 2. Currently, there is a possibility that the price of soda ash will continue to fall, causing the company's profit level to fall short of expectations; 3. The benefits of the real estate industry stabilization policies introduced by the country and local regions may fall short of expectations, real estate continues to be sluggish, and the demand for soda ash affected by the real estate side may fall short of expectations; 4. The company's water index licensing process may be delayed. Currently, Yuanxing Energy's Alashan project has not received all water indicators. If there is a problem with obtaining water indicators in the future, it may affect the overall progress of the natural alkali project construction, causing the soda ash production capacity to fall short of expectations ; 5. Litigation risk: Mengda Mining was affected by the lawsuit. The probable range of the company's estimated liabilities is between 0-1.889 billion yuan, and the estimated debt amount accrued in 2023 is 0.964 billion yuan, which does not rule out the risk of further increases.