Short-term results are under pressure. The company recently released its 2024 quarterly report. In the first quarter, it achieved operating income of 6.89 billion yuan, +4.8% year on year; realized net profit to mother of 380 million yuan, -15.1% year on year. On a month-on-month basis, the revenue change in the first quarter compared to the previous quarter was +11.5%, and net profit to mother was -14.3%. In terms of profit level, the company's comprehensive gross margin for the first quarter was 14.4%, year-on-year change -1.6 pct, month-on-month change -12.4 pct; net interest rate was 5.5%, year-on-year change -1.6 pct, and month-on-month change -1.1 pct.
The boom in the chemicals sector is bottoming out, and the scarcity of leading phosphate ore resources is prominent. Currently, the company's overall chemical sector is not very prosperous. In particular, the price difference between glyphosate and silicone products is basically at an absolute low level in history. Recently, only the price of monoammonium phosphate in the phosphate fertilizer sector has rebounded. However, at present, phosphate ore prices are still at a historically high level. We believe that phosphate ore is likely to remain high in the future. On the one hand, demand for agricultural fertilizer on the demand side is rigid, and incremental demand for new energy and other fine phosphorus chemical products continues to drive up overall demand for phosphate ore. On the other hand, supply-side phosphate production capacity bottlenecks and uncertainty about the new mining cycle make it difficult to systematically reverse the current tight balance between phosphate supply and demand. In this context, only companies with phosphate ore support can be expected to maintain stable medium- to long-term performance. As of April 1, 2024, the company's phosphate ore resource reserves with mining rights are about 405 million tons, and the phosphate ore design production capacity is 5.85 million tons/year. According to the company's official website, the current exploration project for which the company has prospecting rights has proven reserves of about 477 million tons of phosphate resources. We are optimistic about the stability of the company's performance with scarce resources.
Supplement silica resource facilities and enhance the competitiveness of the silicone industry. At the end of April 2024, the company announced that its subsidiary Hubei Xingrui plans to acquire 100% of Gucheng Xingfa's shares in cash, with a transaction consideration of about 329 million yuan. After the transaction is completed, the target company will become the company's consolidated wholly-owned subsidiary. In December 2023, Gucheng Xingfa Silica Mine obtained a 1 million tons/year safety production license. In the future, its silica mining capacity will be increased from 300,000 tons/year to 1 million tons/year, effectively complementing the company's supporting demand for upstream industrial silicon in the development of the new silicone materials industry and further enhancing the competitiveness of the company's silicon industry.
Due to cyclical pressure on the company's phosphorus chemical and silicone sectors, the price and gross profit margin of related products were lowered. We predicted that the company's net profit for 24-26 would be 16.85, 20.84, and 22.72 yuan (the original 24-25 forecast was 30.73 billion yuan and 3.666 billion yuan), respectively. According to comparable companies 14 times PE in 24 years, a target price of 21.42 yuan was given and the purchase rating was maintained.
Risk warning: Product and raw material prices fluctuate, new production capacity and sales fall short of expectations, downstream demand falls short of expectations