The company released its 2024 semi-annual report, and the results were in line with expectations. 24H1 achieved operating income of 11.005 billion yuan (yoy +2%), net profit of 0.454 billion yuan (yoy -11%), net profit after deduction of 0.441 billion yuan (yoy +17%), gross margin fell 0.63 pct year-on-year to 10.54%, net investment income -0.044 billion yuan (year-on-year decrease of 0.142 billion yuan), net operating cash flow of 0.868 billion yuan (yoy -11%), net operating cash flow of 0.868 billion yuan ( YOY +214%). Among them, 24Q2 achieved operating income of 6.051 billion yuan (yoy +19%, QoQ +22%), net profit of 0.24 billion yuan (yoy +53%, QoQ +13%), net profit after deduction of 0.287 billion yuan (yoy +245%, QoQ +85%), gross margin increased 1.73 pct to 11.32% month-on-month, and net investment income -0.084 billion yuan (decrease of 0.124 billion yuan over the previous month) . The main reason for the year-on-year increase in 24H1's performance after deducting the company's compound fertilizer production capacity of 1.55 million tons was gradually released in '23, and compound fertilizer sales increased 24% year on year in the first half of the year. The main reason for the month-on-month increase in compound fertilizer in the second quarter was that compound fertilizer ushered in demand for additional fertilizer in the second quarter, and sales volume is expected to increase month-on-month.

Projects under construction have been put into operation one after another, and the amount of compound fertilizer continues to be released. 24H1's conventional compound fertilizer and new compound fertilizer and phosphate fertilizer achieved gross profit of 0.299 billion yuan (yoy +23%) and 0.541 billion yuan (yoy +15%), respectively, and achieved gross profit margins of 10.19% (yoy-0.39pct) and 18.02% (yoy+1.56 pct), respectively. According to Baichuan Yingfu statistics, the prices of monoammonium phosphate, potassium chloride, and urea in 24Q2 were -2%, -4%, and +0.4% month-on-month, respectively. Under the influence of stable single fertilizer prices and delays in compound fertilizer preparation in the first quarter, the company's compound fertilizer shipments are expected to increase significantly in the second quarter. The 24H1 0.15 million-ton powdery water-soluble compound fertilizer project in Jingzhou, Hubei was completed and put into trial production. At this point, the company's compound fertilizer production capacity has been expanded to 7.2 million tons. Sales of the new fertilizer are expected to increase further, and another 0.3 million ton compound fertilizer project in Tieling is under construction.

Competition intensified and demand weakened, and the alkali and yellow phosphorus businesses were temporarily under pressure. 24H1 achieved gross profit of 0.122 billion yuan (yoy -37%) and 0.085 billion yuan (yoy -52%), and gross profit margins of 23.37% (yoy-2.62pct) and 13.55% (yoy-11.31pct), respectively. According to Baichuan Yingfu data, the average domestic prices of ammonium chloride, light soda ash, and yellow phosphorus fell by 43%, 17%, and 11% respectively in 24H1. In the future, the company will continue to optimize the industrial structure, enhance scale and cost advantages, and promote development in the direction of refinement, high-end and high value.

Phosphoric acid classification uses commissioning to improve scale efficiency and profitability, and projects such as phosphate ore and ammonia synthesis are progressing smoothly. As of the end of 24H1, the company's fixed assets increased by 0.477 billion yuan to 7.653 billion yuan compared to the end of 2023. 24H1 Jingzhou New Energy Company's supporting production lines such as 0.3 million tons of pure wet phosphoric acid and 0.15 million tons of refined phosphoric acid have reached full production, and the iron phosphate is fully produced and sold, achieving the hierarchical utilization of “phosphate ore - wet phosphoric acid - refined phosphate - iron phosphate/phosphate fertilizer”. Production and sales strategies can be adjusted in a timely manner according to market changes in related products in the industry chain to maximize production efficiency. In the future, the company will rely on the resources of the entire nitrogen and phosphorus industry chain to further consolidate its low cost advantages: 1) The phosphorus industry chain. The 4 million ton phosphate mining project for the Niuniuzhai East section of the Sichuan Leibo base is progressing in an orderly manner, and the Niuniuzhai West Phosphate Mine and the Ajluoxia Phosphate Mine have completed the reserve review and filing. After mining the minerals, the company is basically self-sufficient in the phosphorus sources required. 2) Nitrogen fertilizer industry chain. The 0.7 million ton ammonia synthesis project at the Hubei Yingcheng base has made positive progress. The main project has entered a substantial stage, and the nitrogen fertilizer raw material end was further filled up after completion.

Investment analysis opinion: Mainstream domestic compound fertilizer enterprises with integrated industrial chains lay out phosphate ore and synthetic ammonia upward, and lay out graded utilization projects for refined phosphoric acid and other phosphate ores downward to start new growth. We maintain the company's 2024-2026 net profit forecast of 1.026, 1.231, and 1.477 billion yuan, and the corresponding EPS is 0.85, 1.02, and 1.22 yuan/share, corresponding to the current PE of 9X, 7X, and 6X, maintaining an increase rating.

Risk warning: raw material prices have risen sharply; product prices have declined sharply; downstream demand falls short of expectations; progress of projects under construction falls short of expectations.