1Q24 results are in line with expectations
Yuntianhua announced its 1Q24 results: revenue of 13.86 billion yuan, a decrease of 12.8%/12.1%; net profit to mother of 1.46 billion yuan, a change of -7.2%/+78.5%, corresponding to earnings of 0.80 yuan per share, which is in line with our expectations. 1Q24 deducted non-net profit of 1,435 billion yuan, -5.41% year on year; net cash flow from operating activities was 2.49 billion yuan, +62.4% year over year.
1Q24 compound fertilizer and urea sales rebounded year on year but fertilizer prices fell: phosphate fertiliser/compound fertiliser/urea sales volume changed -3.7%/36.0%/31.5% year on year to 118/43/62 million tons, average price fell 4.4%/14.8%/16.4% year on year to 3,353/3,073/2,184 yuan/ton, 1Q24's gross profit margin was 17.7%, year on year +1.1ppt.
Development trends
Phosphate prices remain high, and the company's resource advantages help maintain profits and prosperity. According to Baichuan information, phosphate ore (average price of 30% grade) is currently still at a high level of 1,015 yuan/ton. Looking back, in 2023, only 2Q23 was affected by weak demand for downstream fertilizers and new energy sources. Phosphate ore prices fell by around 200 yuan/ton, then recovered to a high level. Considering that it takes a long time to build new phosphate ore, we believe that the increase in supply will be limited in the short term, and supply and demand will continue to be tight. The company has its own production capacity of 14.5 million tons of phosphate ore, and produced 12.9 million tons of finished ore in 2023. At the same time, the participating company Polyphosphate New Materials obtained 800 million yuan for the phosphate survey prospecting rights at Zhenxiong Bowl Factory. We believe that its phosphorus chemical cost advantage is expected to continue to strengthen. In terms of fertilizer products, according to Baichuan information, the average price of diammonium phosphate/urea is currently 3,658/2,083 yuan/ton, respectively. Looking ahead, we believe that exports may gradually resume as the domestic spring farming fertilizer period ends, which is expected to drive the gradual recovery of fertilizer prices.
Cash flow is abundant, the balance and liability structure continues to be optimized, and they are optimistic about the sustainability of high dividends. Since 2021, chemical fertilizer has entered a boom period, and the company's cash flow has improved dramatically: cumulative net operating cash flow of 27.7 billion yuan was achieved in 2021-23, the balance ratio fell from 83.9% at the end of 2020 to 56.3% in 1Q24, and the reduction in financial expenses further increased the company's net profit level. At the same time, sufficient funds help the company strengthen its advantages:
On the fertilizer side, in 2023, it acquired 98.5% of Qinghai Yuntianhua's shares for 1.6 billion yuan, increasing the production capacity of gas and urea by 600,000 tons/year and the production capacity of compound fertilizer by 500,000 tons/year; on the fluorine and phosphorus resource side, construction of production capacity such as iron phosphate and hydrogen fluoride to promote the transformation and upgrading of the company, etc., establishing long-term profit certainty. At the same time, we are optimistic that the company will continue to pay a high percentage of dividends after entering a new stage of development.
Profit forecasting and valuation
We keep our 2024/25 profit forecast of 47.6/4.92 billion yuan unchanged. The current stock price corresponds to the 2024/25 7.5/7.2x price-earnings ratio. Maintaining a target price of 22.5 yuan, corresponding to a 16.3% increase and a price-earnings ratio of 8.7/8.4x in 2024/25, maintaining an outperforming industry rating.
risks
Demand for chemical fertilizer fell short of expectations, and phosphate ore prices fell sharply.