Key points of investment:

The company released its 2024 three-quarter report, and the results were in line with expectations. In the first three quarters of 24, the company achieved operating income of 15.697 billion yuan (yoy -3%), net profit of 0.669 billion yuan (yoy -6%), net profit of 0.584 billion yuan (yoy +4%) after deduction, gross profit margin of 10.64% (yoy-0.46 pct), net interest rate 4.34% (yoy+0.01 pct). Net investment income fell 6.729 billion yuan to 3.007 billion yuan year-on-year. The results were in line with the results. Expectations. Among them, 24Q3 achieved operating income of 4.691 billion yuan (yoy -13%, QoQ -22%), net profit of 0.215 billion yuan (yoy +6%, QoQ -10%), net profit after deduction of 0.143 billion yuan (yoy -23%, QoQ -50%), gross profit margin of 10.88% (yoy-0.07 pct, QoQ-0.44 pct), net profit margin 4.72% (yoy+1.17 pct, QoQ+ 0.65 pct), net investment income increased 0.157 billion yuan month-on-month to 0.074 billion yuan. The main reasons for the year-on-month decline in 24Q3's net profit after deduction are: 1) the expected decline in compound fertilizer sales; 2) the year-on-month decline in alkali prices.

The average price of urea fell in 24Q3, putting pressure on compound fertilizer sales, and projects under construction progressed one after another. According to Baichuan Yingfu data, the average domestic urea price fell 13%/7% to 2,086 yuan/ton in 24Q3, which greatly affected the purchasing enthusiasm of compound fertilizer dealers. It is expected that the company's compound fertilizer sales will also be affected to a certain extent. Looking ahead to the fourth quarter, as of October 25, 2024, the average domestic prices of monoammonium phosphate, potassium chloride, and urea have changed by -2%, 0%, and -2% month-on-month respectively since October, and the decline in basic fertilizer prices has narrowed and gradually stabilized; from an inventory perspective, after continuous accumulation since the end of June, the total inventory of compound fertilizer plants reached a phased peak and turned downward in late September. Combined, the compound fertilizer procurement demand for the third quarter was postponed to the fourth quarter. Under the catalyst of winter fertilizer storage demand, the compound fertilizer market is expected not to weaken during the fourth quarter. According to the company's semi-annual report, the 24H1 0.15 million-ton powdery water-soluble compound fertilizer project 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.

The price of alkali declined month-on-month, and the profit of yellow phosphorus recovered month-on-month. According to Baichuan Yingfu data, the average prices of ammonium chloride, light soda ash, and yellow phosphorus in 24Q3 were -5%, -16%, and +3%, respectively. 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 24Q3, the company's fixed assets increased by 0.382 billion yuan to 7.558 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 ore mining project for Niuniuzhai East section of Sichuan Leibo Base is progressing in an orderly manner. The 2.9 million ton phosphate mine in Ajluoxia obtained a mining license in October, and the Niuniuzhai West phosphate mine 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. Considering the ongoing pressure on the Alkali business, we lowered the company's 2024-2026 net profit forecast to be 0.842, 1.068, and 1.334 billion yuan (previous values were 1.026, 1.231, 1.477 billion yuan), and the corresponding EPS was 0.70, 0.88, and 1.10 yuan/share, corresponding to the current PE to 12X, 9X, and 8X, maintaining an increase rating.

Risk warning: the price of raw materials has risen sharply; the price of products has dropped sharply; the progress of projects under construction falls short of expectations.