Investment Rating - The report maintains an "Outperform" rating for China XLX Fertiliser [1][7][19] Core Views - In the first three quarters of 2024, the company achieved a net profit attributable to shareholders of RMB 1.534 billion, representing an 80.7% year-on-year increase, while operating income was RMB 17.420 billion, down 0.6% year-on-year [1][4] - The growth in performance is attributed to a decline in costs leading to a 5% year-on-year increase in gross profit, alongside a stable production line that effectively reduced overall energy consumption, resulting in a gross margin increase to 19% [1][4] - The company has also seen significant sales increases in major products, with urea sales volume up 33% year-on-year and methanol sales volume up 17% year-on-year [5][6] Financial Performance Summary - For the first three quarters of 2024, the average price of urea was RMB 2,029 per tonne, down 14% year-on-year, with sales volume reaching 2.768 million tonnes [5] - The average price of compound fertiliser remained flat at RMB 2,679 per tonne, with sales volume stable at 1.734 million tonnes, while gross margin increased by 5% year-on-year to 17% [5] - The company expects EPS for 2024, 2025, and 2026 to be RMB 1.18, 1.28, and 1.42 respectively, with a target price of HKD 5.16 based on a PE of 4.02 for 2024 [7][19] Project Development - Ongoing projects include the Xinjiang paraformaldehyde project, expected to complete by the end of 2024, and the Jiangxi Jiujiang industry chain extension project, anticipated to commence operations in Q3 2025 [6][7] - The Zhundong project and Guangxi Base Big Project are also progressing as planned, with expected completion dates in 2025 and 2026 respectively [6][7]

Financial Performance - For the nine months ended September 30, 2024, the company's operating revenue was RMB 17,419,724 thousand, a decrease of 0.6% compared to the same period last year[1]. - Net profit for the same period increased significantly by 75.8% to RMB 2,031,307 thousand, with net profit attributable to shareholders of the parent company rising by 80.7% to RMB 1,534,087 thousand[1]. - Basic earnings per share rose by 85.3% to RMB 1.26, while the weighted average return on equity decreased by 2 percentage points to 17.65%[1]. Cost and Margin Analysis - The company achieved a gross profit growth of 5% due to reduced raw material prices and stable production operations, while management and financial expenses decreased by 2% and 13% respectively[2]. - Urea gross margin remained stable at 30% compared to the same period last year[7]. - Compound fertilizer gross margin increased by 5 percentage points to 17%, driven by an 11% increase in sales of high-efficiency compound fertilizers, particularly in Xinjiang[7]. - Methanol gross margin rose by 8 percentage points to 8% due to ongoing technological innovations that reduced costs by 6%[7]. - Melamine gross margin decreased by 4 percentage points to 30% due to a decline in selling prices[7]. - The pharmaceutical intermediates segment saw a 13 percentage point drop in gross margin to -3%, attributed to increased costs from immature technology in Xinjiang[7]. Asset and Equity Position - Total assets increased by 5.6% to RMB 30,780,414 thousand, and equity attributable to owners rose by 19.0% to RMB 12,501,326 thousand[2]. - The asset-liability ratio improved to 59.4%, a decrease of 4.5 percentage points from the previous year[2]. - The company received RMB 800 million from the sale of its 100% stake in Tianxin Coal Industry, which effectively reduced its asset-liability ratio[3]. Sales and Production Capacity - Urea sales volume increased by 33% to 2,768,000 tons, driven by expanded production capacity and recovery of production facilities[6]. - The average price of urea decreased by 14% to RMB 2,029 per ton due to falling raw material prices and market supply-demand factors[5]. - The pharmaceutical intermediate segment saw an 18% increase in average price to RMB 45,106 per ton, supported by an increase in sales of higher-priced products[5]. Project Developments - The Xinjiang project is expected to complete construction by the end of the year, with a production capacity of 60,000 tons of formaldehyde[8]. - The Jiangxi project is on track for completion in Q3 2025, with a total capacity of 600,000 tons of synthetic ammonia and 1.2 million tons of controlled-release fertilizer[8]. - The Guangxi base project is progressing as planned, with a capacity of 1.2 million tons of synthetic ammonia and 1 million tons of high-efficiency compound fertilizers[9]. Market Outlook - The company anticipates stable fertilizer prices due to seasonal demand and supply constraints in the winter[10]. - Long-term growth is expected as the company focuses on sustainable development and green low-carbon transformation, enhancing product differentiation and resource utilization[11].

Strategic Positioning and Development Principles - The company's strategic positioning includes adhering to the development strategy of "Fertiliser as foundation, fertiliser and chemical side by side" and the operating strategy of "low-cost and differentiation" [5] - The company aims to achieve high-efficiency, high-end, lean development in the Group as its core mission [5] - The company follows six development principles, including strategic positioning direction, customer orientation, pursuing excellence, pragmatic and highly efficient management, key capabilities enhancement, and preventing and controlling development risks [6][7] - The company is committed to becoming China's most respected fertiliser enterprise group [5] Company Overview and Governance - The company's headquarters is located in Xinxiang Economic Development Zone, Henan Province, PRC [10] - The company's stock code on the Hong Kong Stock Exchange is 1866 [10] - The company's corporate website is www.chinaxlx.com.hk [10] - The company's board includes executive directors and independent non-executive directors, with Liu Xingxu as the Chairman of the Board [8] - The company's auditor is Ernst & Young LLP, with Yong Kok Keong as the partner-in-charge [9] - The company's principal bankers include China Construction Bank, Agricultural Bank of China, Bank of China, Industrial & Commercial Bank of China, Bank of Communications, and HSBC [9] Financial Performance and Key Metrics - Total revenue increased by approximately RMB2 million or 0.02% from RMB12,059 million in 1H2023 to RMB12,061 million in 1H2024 [11] - Net profit increased by approximately RMB160 million or 21% from RMB778 million in 1H2023 to RMB938 million in 1H2024 [11] - Gross profit increased by 12% YoY due to declining raw material costs [11] - Revenue for 2024 remained stable at RMB 12,060,957 thousand, showing minimal growth compared to RMB 12,059,121 thousand in 2023 [101] - Gross profit increased to RMB 2,355,720 thousand in 2024, up from RMB 2,110,699 thousand in 2023, reflecting improved cost management [101] - Profit before tax rose to RMB 1,122,610 thousand in 2024, compared to RMB 925,758 thousand in 2023, indicating stronger operational performance [101] - Net profit attributable to owners of the parent increased to RMB 686,996 thousand in 2024 from RMB 546,194 thousand in 2023 [101] - Basic earnings per share grew to RMB 56.4 cents in 2024, up from RMB 44.8 cents in 2023 [101] - Total assets increased to RMB 31,283,035 thousand in 2024, compared to RMB 29,133,496 thousand in 2023, driven by growth in non-current assets [103] - Cash and cash equivalents significantly increased to RMB 2,014,075 thousand in 2024 from RMB 1,162,558 thousand in 2023, reflecting improved liquidity [103] - Total equity rose to RMB 11,676,254 thousand in 2024, up from RMB 10,510,998 thousand in 2023, indicating stronger financial health [105] - Non-current liabilities decreased slightly to RMB 8,131,009 thousand in 2024 from RMB 8,178,917 thousand in 2023, showing reduced long-term debt burden [105] - Retained profits grew to RMB 3,774,432 thousand in 2024, up from RMB 3,378,490 thousand in 2023, reflecting improved profitability [107] - Total equity increased to RMB 11,676,254,000 as of 30 June 2024, up from RMB 10,510,998,000 at the beginning of the year [109] - Profit for the period reached RMB 686,996,000, contributing to the overall equity growth [109] - Net cash flows generated from operating activities amounted to RMB 2,075,084,000 for the six months ended 30 June 2024 [111] - Cash and cash equivalents at the end of the year stood at RMB 2,014,075,000, a significant increase from RMB 1,162,558,000 at the beginning of the year [113] - The company received government grants totaling RMB 49,214,000 during the period [111] - Proceeds from disposal of property, plant, and equipment were RMB 814,550,000, a substantial increase from RMB 33,004,000 in the same period last year [111] - Dividends paid to non-controlling shareholders amounted to RMB 446,138,000 [111] - Loans and borrowings proceeds were RMB 4,892,178,000, slightly higher than the previous year's RMB 4,880,817,000 [111] - Repayments of loans and borrowings were RMB 4,029,744,000, a decrease from RMB 5,292,047,000 in the same period last year [111] Product Performance and Segment Analysis - Urea sales revenue increased by approximately RMB316 million or 9% from RMB3,518 million in 1H2023 to RMB3,834 million in 1H2024 [12] - Urea sales volume increased by 25% YoY, while average selling price decreased by 13% YoY [12] - Urea gross profit margin increased by 2 percentage points from 29% in 1H2023 to 31% in 1H2024 [12] - Urea production output increased by 24% YoY due to released production capacity [12] - Urea solution for vehicle sales revenue decreased by approximately RMB59 million or 26% from RMB225 million in 1H2023 to RMB166 million in 1H2024 [12] - Urea solution for vehicle gross profit margin decreased by 6 percentage points to 18% in 1H2024 [12] - Compound fertilisers revenue increased by RMB 202 million or 6% to RMB 3,410 million in 1H2024, driven by a 13% YoY increase in sales volume, partially offset by a 6% YoY decrease in average selling price [13] - Compound fertilisers gross profit margin rose by 6 percentage points to 18% in 1H2024, due to an 18% YoY decrease in potash procurement price and a 23% YoY increase in high-efficiency compound fertiliser sales [13] - Methanol revenue increased by RMB 314 million or 32% to RMB 1,291 million in 1H2024, driven by a 31% YoY increase in sales volume and a 1% YoY increase in average selling price [13] - Methanol gross profit margin improved by 10 percentage points to 8% in 1H2024, due to a 9% YoY decrease in average cost of sales [13] - Melamine revenue decreased by RMB 15 million or 4% to RMB 397 million in 1H2024, mainly due to a 6% YoY decrease in average selling price [14] - Melamine gross profit margin decreased by 6 percentage points to 30% in 1H2024, due to a 6% YoY decrease in average selling price [14] - DMF revenue increased by RMB 72 million or 14% to RMB 595 million in 1H2024, driven by a 31% YoY increase in sales volume, despite a 13% YoY decrease in average selling price [14] - DMF gross profit margin increased by 2 percentage points to 13% in 1H2024, due to a 15% YoY reduction in average cost through production technology innovation and equipment improvement [14] - Revenue from the medical intermediate segment decreased by RMB65 million (22%) YoY to RMB234 million in 1H2024, driven by a 33% YoY decline in sales volume [15] - Gross profit margin of the medical intermediate segment dropped by 17 percentage points to -1% in 1H2024 due to a 38% YoY increase in average production costs [15] - Other income, net increased by RMB22 million (24%) YoY to RMB112 million in 1H2024, primarily due to a RMB31 million rise in subsidy income [15] - The company operates in seven reportable segments: urea, urea solution for vehicles, compound fertilizer, methanol, melamine, DMF, and medical intermediates [122] - Total revenue for the six months ended 30 June 2024 was RMB 12,060,957,000, with urea contributing the largest share at RMB 3,834,000,000 [126] - Segment profit for the period was RMB 2,355,720,000, with urea generating the highest segment profit of RMB 1,181,231,000 [126] - Other products, including liquid ammonia, organic amines, humic acid, and furfuryl alcohol, contributed sales revenue of RMB 668 million, RMB 275 million, RMB 201 million, and RMB 163 million respectively [127] - Profit before tax for the period was RMB 1,122,610,000, with income tax expense of RMB 184,124,000, resulting in a net profit of RMB 938,486,000 [126] - Unallocated expenses for the period amounted to RMB 980,827,000, primarily consisting of other income, other expenses, selling and distribution expenses, general and administrative expenses, finance costs, and income tax expense [126] - Interest income for the period was RMB 13,714,000, while finance costs were RMB 265,997,000 [126] Expenses and Costs - Selling and distribution expenses rose by RMB67 million (22%) YoY to RMB378 million in 1H2024, driven by increased advertising and sales performance commissions [16] - General and administrative expenses increased by RMB62 million (9.7%) YoY to RMB702 million in 1H2024, mainly due to higher management salaries and service fees [16] - Finance costs decreased by RMB58 million (18%) YoY to RMB266 million in 1H2024, supported by lower interest rates and early repayment of high-interest borrowings [18] - Employee benefit expenses, including salaries and bonuses, rose to RMB 1,221,372 thousand in 2024 from RMB 1,076,976 thousand in 2023 [145] Market and Industry Outlook - The company expects compound fertilizers to perform better in 2H2024, with industrial demand for urea significantly increasing due to national policy requirements [24] - Domestic economic recovery is expected to improve in the second half of the year, with stable coal prices and balanced supply and demand in the fertilizer industry [27] - Urea demand is projected to increase significantly due to government-mandated urea denitrification upgrades in the power sector [27] - The company is leveraging big data and transforming its sales structure to focus on large-scale farmers, enhancing brand influence through differentiated products and precision services [27] - The company is strengthening technical upgrades and investing in advanced technologies to maximize investment returns [27] - Domestic policy adjustments have led to a significant increase in volume, impacting overall cash flow [27] Shareholder and Equity Information - Ms. Yan Yunhua holds 21.18% of the company's issued shares, with 257,166,000 shares in total [31] - Pioneer Top Holdings Limited holds 35.11% of the company's issued shares, with 426,344,999 shares [35] - Mirth Power Limited holds 17.45% of the company's issued shares, with 211,939,848 shares [35] - The Share Award Plan is valid for 10 years from 17 May 2024, with a grant price of HK$1.5 per share [61][64] - 70,790,000 awards were granted under the Share Award Plan during the reporting period, representing approximately 5.83% of the company's issued share capital [69] - The maximum number of shares subject to awards in a 12-month period shall not exceed 1% of the relevant class of shares in issue [69] - The aggregate maximum number of shares under the Share Award Plan and other share schemes shall not exceed 10% of the total issued shares as of the adoption date (121,768,000 shares) [67][68] - The first vesting period allows 50% of the awarded shares to be vested, while the second vesting period allows the remaining 50% [66] - The minimum holding period for an award before vesting is 12 months, but the board may determine a shorter period at its discretion [66] - The number of share awards available for grant under the Share Award Plan at the end of the reporting period was 50,978,000 [70][71] - During the reporting period, 70,790,000 share awards were granted under the Share Award Plan, representing approximately 5.83% of the company's issued share capital [70] - The ratio of shares issued for options and awards granted during the reporting period to the weighted average number of shares (excluding treasury shares) was 5.81% [70][71] - On 7 June 2024, 15,540,000 shares were awarded to connected persons of the company (excluding directors, chief executives, or substantial shareholders) [74] - A total of 51,140,000 shares were awarded to other selected participants on 7 June 2024 [75] - The share closing price on the date of grant (7 June 2024) was HK$3.86 per share [74][75] - The company repurchased 4,336,000 issued shares through the SEHK spot market at a total consideration of approximately HK$17,316,000, representing 0.36% of the issued shares as of 30 June 2024 [84][85] - The repurchased shares were canceled on 18 June 2024, with the purchase price per share ranging from HK$3.795 to HK$4.15 [84][86] - The share repurchase was based on the company's confidence in its long-term business prospects and potential growth, aiming to optimize the capital structure and improve earnings per share, net assets per share, and overall shareholder returns [84][85] - No equity-linked agreements were entered into by the company during the reporting period, except for the disclosed Share Award Plan [77][79] - The company confirmed compliance with the Model Code for Securities Transactions by Directors of Listed Issuers during the six months ended 30 June 2024 [81][83] - No incidents of non-compliance with the Employees Written Guidelines for securities transactions were noted during the reporting period [82][83] - The company did not hold any treasury shares as of 30 June 2024, and no other listed securities were purchased, sold, or redeemed during the period [87] Debt and Liquidity Management - The Group's debt maturing in less than one year as of 30 June 2024 is approximately RMB 5,020,000,000, representing 41.10% of total debts, compared to RMB 4,468,625,000 (38.41%) as of 31 December 2023 [50] - The gearing ratio (total debt divided by total assets) as of 30 June 2024 is 62.7%, a decrease of 1.3 percentage points compared to 31 December 2023 [52] - The Group's revenue and costs are primarily denominated in RMB, with some costs in HKD, USD, or SGD [45] - The consumer price index in China increased by 0.1% YoY for the six months ended 30 June 2024, with no significant impact on the Group's operating results [46] - The Group has no material contingent liabilities or significant litigation/arbitration as of 30 June 2024 [53][54] - No significant investments were made during the six months ended 30 June 2024 [56] - The Group is exposed to market risks including changes in product selling prices, raw material costs (mainly coal), and fluctuations in interest and exchange rates [42] - Commodity price risk arises from fluctuations in product sale prices and raw material costs [43] - Interest rate risk is primarily related to the Group's long-term debt obligations subject to floating rates [44] - The Group monitors liquidity risk by balancing funding continuity and flexibility through bank overdrafts and loans [50] - The Group's debt-to-asset ratio decreased to 62.7% as of the first half of 2024, down by 1.3 percentage points from 64% at the end of 2023 [174][176] - Total interest-bearing bank and other borrowings amounted to RMB 12,213,223,000 as of 30 June 2024, compared to RMB 11,633,132,000 at the end of 2023 [171] - Secured bank loans totaled RMB 1,528,279,000, secured by the Group's property, plant, and equipment [172] - Interest expenses capitalized to property, plant, and equipment during the period were RMB 4,070,000, a significant decrease from RMB 13,322,000 in the same period of 2023 [175][176] - Bank loans repayable within one year or on demand increased to RMB 4,731,317,000 as of 30 June 2024, up from RMB 4,088,482,000 at the end of 2023 [171] Investments and Disposals - Xinjiang XLX Energy Chemicals Co., Ltd. disposed of 100% equity interests in Manas Tianxin Coal CO., LTD for a total consideration of approximately RMB1,374 million [88][90] - No significant investments were made during the six months ended 30 June 2024 [56] - The company has no plans for material investments or capital assets as of 30 June 2024 [60] Employee and Training Information - The Group had 10,781 employees as of 30 June 2024, an increase from 10,390 employees as of 31 December 2023 [92][95] - Marketing personnel's performance commissions and bonuses decreased due to the decline in performance this year [92][95] - The Group provides ongoing training for all employees, including Directors and senior management, tailored to their specific fields of operation [92][95] - No significant events affecting the Group have occurred since the end of the reporting period [93][96] Dividend and Shareholder Returns - The company proposed a final dividend of RMB 0.24 per ordinary share for the year ended 31 December 2023, totaling approximately RMB 292,503 thousand, but did not declare any interim dividend for 2024 [150] - The final dividend for the year ended December 31, 2023, is RMB 0.24 per ordinary share, totaling approximately RMB 292,503,000, compared to RMB 307,030,000 for the year ended December 31, 2022 [152] Financial Reporting and Standards - The

Investment Rating - The report assigns a "Buy" rating for the company with a target price of 6.5 HKD, indicating an 83% upside potential from the current price of 3.6 HKD [3][2]. Core Insights - The company achieved a 26% year-on-year growth in net profit for the first half of 2024, exceeding expectations, despite a decline in fertilizer and fine chemical product prices [2][1]. - The strong cost advantage of the company allows it to maintain high profitability even during a downturn in urea prices [2][1]. - The increase in sales volume of efficient fertilizers contributes to an improvement in profit margins [2]. Financial Performance Summary - Revenue for the first half of 2024 reached 12.06 billion RMB, remaining flat year-on-year, while net profit attributable to shareholders was 690 million RMB, up 26% [2]. - Urea revenue was 3.83 billion RMB, a 9% increase year-on-year, with a 13% price decline but a 25% increase in sales volume, leading to a 2 percentage point increase in gross margin to 31% [2]. - Compound fertilizer revenue was 3.41 billion RMB, a 6% increase year-on-year, with a 6% price decline and a 13% increase in sales volume, resulting in a 6 percentage point increase in gross margin to 18% [2]. - The chemical business continues to expand, with methanol revenue increasing by 32% year-on-year to 1.29 billion RMB, and DMF revenue growing by 14% to 600 million RMB [2]. Future Outlook - The company is expected to experience a peak in capital expenditures from 2024 to 2026, with several new projects set to commence production, including a compound fertilizer project in Huludao and a 60,000-ton polyformaldehyde project in Xinjiang [2]. - To alleviate financial pressure and focus on its core business, the company has sold its 100% stake in Xinjiang Tianxin Coal Mine for 1.37 billion RMB, providing a one-time income boost [2].

Investment Rating - The report maintains an "Outperform" rating for China XLX Fertiliser [2][8]. Core Insights - In the first half of 2024, the company achieved a net profit attributable to shareholders of RMB 687 million, representing a year-on-year increase of 25.78%. The total operating revenue was RMB 12.178 billion, up 0.26% year-on-year [5][6]. - The growth in net profit was primarily driven by a rebound in the chemicals market and improved performance of wholly-owned subsidiaries. The company has optimized production processes and controlled energy consumption, leading to a gross margin of 19.53%, an increase of 2.03 percentage points year-on-year [5][6]. - The company sold its 100% equity interest in Tianxin Coal Mine for RMB 1.374 billion, which will no longer hold equity interests in the coal industry post-transfer [7][8]. Financial Summary - The company’s sales revenue by product in the first half of 2024 includes: 1. Finished urea: RMB 3.834 billion, up 9% YoY, with a gross margin of 31% [6]. 2. Automotive urea solution: RMB 166 million, down 26% YoY, with a gross margin of 18% [6]. 3. Compound fertilizer: RMB 3.410 billion, up 6% YoY, with a gross margin of 18% [6]. 4. Methanol: RMB 1.291 billion, up 32% YoY, with a gross margin of 8% [6]. 5. Melamine: RMB 397 million, down 4% YoY, with a gross margin of 30% [6]. 6. DMF: RMB 595 million, up 14% YoY, with a gross margin of 13% [6]. - The company’s earnings per share (EPS) forecast for 2024-2026 is RMB 1.18, 1.28, and 1.42 respectively, with a target price of HKD 5.16 based on a PE ratio of 4.02 [8]

Financial Performance - Revenue for the six months ended June 30, 2024, was RMB 12,060,957 thousand, a slight increase from RMB 12,059,121 thousand in the same period last year[2] - Gross profit for the period was RMB 2,355,720 thousand, up from RMB 2,110,699 thousand, representing a growth of approximately 11.6%[2] - Profit before tax increased to RMB 1,122,610 thousand, compared to RMB 925,758 thousand in the previous year, reflecting a growth of about 21.3%[2] - Net profit for the period was RMB 938,486 thousand, an increase of 20.6% from RMB 777,559 thousand year-on-year[2] - Basic earnings per share rose to RMB 56.4, compared to RMB 44.8 in the same period last year, marking a growth of 26.8%[2] Assets and Liabilities - Total assets as of June 30, 2024, amounted to RMB 31,283,035 thousand, up from RMB 29,133,496 thousand at the end of 2023[3] - Current liabilities increased to RMB 11,475,772 thousand from RMB 10,443,581 thousand, indicating a rise of approximately 9.9%[4] - Total liabilities reached RMB 19,606,781 thousand, compared to RMB 18,622,498 thousand in the previous year, reflecting an increase of about 5.3%[5] - Net assets grew to RMB 11,676,254 thousand from RMB 10,510,998 thousand, representing an increase of approximately 11.1%[6] - Cash and cash equivalents increased significantly to RMB 2,014,075 thousand from RMB 1,162,558 thousand, showing a growth of about 73.5%[3] Revenue Breakdown - Urea sales revenue increased by approximately RMB 316 million or 9% to about RMB 3,834 million, driven by a 25% increase in sales volume despite a 13% decrease in average selling price[38] - The segment profit for urea was RMB 1,181,231,000, representing a significant increase from RMB 1,022,566,000 in the previous year[16][17] - Methanol sales revenue increased by approximately RMB 314,000,000 or 32% from RMB 977,000,000 in the first half of 2023 to RMB 1,291,000,000 in the first half of 2024, driven by a 1% increase in average selling price and a 31% increase in sales volume[41] - The segment profit for methanol was RMB 102,136,000, showing improvement from a loss of RMB 16,215,000 in the previous year[16][17] - Compound fertilizer sales revenue rose by approximately RMB 202 million or 6% to about RMB 3,410 million, with a 13% increase in sales volume[40] Expenses and Costs - The cost of sales for inventory was RMB 9,705,237,000 for the six months ended June 30, 2024, down from RMB 9,948,422,000 in 2023[19] - The company incurred financial costs of RMB 265,997,000 in 2024, a decrease from RMB 324,016,000 in 2023[18] - General and administrative expenses increased by approximately RMB 62,000,000 or 9.7% from RMB 640,000,000 in the first half of 2023 to RMB 702,000,000 in the first half of 2024, driven by higher personnel costs and increased operational expenses[47] Dividends and Shareholder Returns - The company declared a final dividend of RMB (292,503,000) for the year 2023, consistent with its commitment to return value to shareholders[8] - The proposed final dividend for the year ended December 31, 2023, is RMB 292,503,000, down from RMB 307,030,000 for the year ended December 31, 2022[22] - The company did not declare any interim dividend for the six months ended June 30, 2024, consistent with the same period in 2023[22] Strategic Initiatives - The company plans to expand its market presence and enhance its product offerings through ongoing research and development initiatives[10] - The company is focused on strategic acquisitions to enhance its operational capabilities and market reach[10] - The company continues to optimize production processes and control energy consumption, achieving a 12% year-on-year increase in overall gross profit[37] Market Outlook - The outlook for the second half of the year indicates a recovery in the domestic economy and a balanced supply-demand situation in the fertilizer industry, with expectations for improved performance in compound fertilizers[51] Employee and Operational Metrics - The number of employees increased to 10,781 as of June 30, 2024, up from 10,390 as of December 31, 2023[63] - The company made payments of approximately RMB 1,894,882,000 for the purchase of property, plant, and equipment during the period, compared to RMB 1,737,713,000 for the same period in 2023[32]

Investment Rating - The report initiates a "Buy" rating for China XLX Fertiliser with a target price of HK$5.70, corresponding to price-to-earnings ratios of 5.2x, 4.9x, and 4.3x for the years 2024, 2025, and 2026 respectively [1][2]. Core Viewpoints - The competition in the high-end compound fertilizer market is less intense than expected [1][2]. - The growth potential of overseas markets has been underestimated [1][2]. - The Chinese fertilizer market is transitioning towards high-quality compound fertilizers due to environmental regulations and rising production costs in the coal-based industry [1][2]. - Despite a decrease in total fertilizer application in 2022, the application of compound fertilizers increased by 8.9% [1][2]. - China XLX Fertiliser is uniquely positioned to capitalize on this transition, aiming to expand market share and achieve higher revenue and net profit growth than its peers [1][2]. Summary by Sections Company Overview - China XLX Fertiliser, established in 1969 and listed in Hong Kong in 2009, is a leading coal chemical group specializing in urea and compound fertilizers, with major production bases in Henan, Xinjiang, and Jiangxi [7][8]. - The company’s main products include urea, compound fertilizers, methanol, and other chemical products, with urea and compound fertilizers contributing 29.3% and 26.1% to total revenue in 2023, respectively [9][10]. Market Insights - The high-end compound fertilizer market is experiencing growth, with a 2022 increase in application volume despite an overall decrease in fertilizer use [23]. - The overseas market has shown significant revenue growth, with overseas sales increasing from RMB 148 million in 2019 to RMB 826 million in 2023, reflecting a 4.6-fold increase [24]. Investment Logic - The demand for high-quality compound fertilizers in China is expected to continue increasing, driven by government policies and changing agricultural practices [25]. - The company has a dual advantage of technology and cost efficiency, supported by significant R&D investments and a nationwide sales network [25][26]. Growth Catalysts - The company plans to expand its production capacity significantly from 2024 to 2026, including new facilities in Henan, Guangxi, and Xinjiang, which will drive growth [28].

Investment Rating - The report maintains a "Buy" rating for the company with a target price of HKD 6.5, indicating an 83% upside potential from the current price of HKD 3.6 [4][2]. Core Insights - The company's net profit attributable to shareholders decreased by 15% year-on-year in Q1 2024, aligning with expectations. Revenue for the same period reached HKD 57.5 billion, down 8% year-on-year [2][4]. - The relaxation of urea export policies is expected to alleviate domestic supply pressure and support price increases, positively impacting market sentiment [2][4]. - The company is focusing on optimizing its sales structure and promoting high-efficiency fertilizers to counteract the negative effects of price declines, ensuring a stable gross margin [2][4]. Financial Performance Summary - In Q1 2024, urea revenue was HKD 19.9 billion, a 2% increase year-on-year, despite a 19% drop in prices. The gross margin for urea remained stable at 30% [2]. - Compound fertilizer revenue was HKD 14.3 billion, down 8% year-on-year, with a gross margin of 14.7%, up 3 percentage points [2]. - The company reported a 8% year-on-year increase in melamine revenue, reaching HKD 2.1 billion, with a gross margin of 43%, up 5 percentage points [2]. - DMF revenue grew by 12% year-on-year to HKD 2.9 billion, with a gross margin of 12%, also up 5 percentage points [2]. Production Capacity Expansion - The company is expanding its production capacity with new projects, including a 700,000-ton urea project in Xinxiang and a second-phase DMF project in Jiangxi, which are expected to enhance production capabilities and reduce costs [2][4]. - Additional projects scheduled for 2024 include a 60,000-ton polyoxymethylene project in Xinjiang and a 300,000-ton compound fertilizer project in Guangxi [2][4].

Financial Performance - For Q1 2024, China XLX Fertiliser Ltd. reported unaudited consolidated revenue of approximately RMB 5.75 billion, a decrease of about RMB 529 million or 8% compared to Q1 2023's revenue of approximately RMB 6.279 billion[1]. - The unaudited net profit for Q1 2024 was approximately RMB 383 million, down about RMB 79 million or 17% from approximately RMB 462 million in Q1 2023[1]. Sales Revenue Analysis - Urea sales revenue increased by approximately RMB 41 million or 2% to about RMB 1.994 billion, driven by a 26% increase in sales volume, although this was offset by a 19% decline in average selling price[2]. - The sales revenue of compound fertilizers decreased by approximately RMB 126 million or 8% to about RMB 1.434 billion, primarily due to an 8% drop in average selling price[4]. - Methanol sales revenue rose by approximately RMB 104 million or 20% to about RMB 632 million, attributed to a 26% increase in sales volume[5]. - The sales revenue of automotive urea solution decreased by approximately RMB 30 million or 29% to about RMB 75 million, with sales volume and average price dropping by 11% and 20%, respectively[3]. - The sales revenue of pharmaceutical intermediates fell by approximately RMB 33 million or 23% to about RMB 111 million, primarily due to a 35% decrease in sales volume[9]. Profit Margins - The gross profit margin for DMF improved from 7% in Q1 2023 to 12% in Q1 2024, due to a 22% decrease in average production costs[8]. - The gross profit margin for compound fertilizers increased from approximately 11.7% to 14.7%, supported by a decline in raw material costs[4]. Market Dynamics and Strategy - The raw material coal supply and demand dynamics are changing, leading to a stable increase in prices, which will support the prices of coal chemical products[10]. - Agricultural demand is expected to boost sales of high-nitrogen fertilizers during the peak seasons, supporting the group's increased sales of efficient compound fertilizers[10]. - The fertilizer export window will alleviate domestic supply pressure and enhance market sentiment, further optimizing the supply-demand structure of fertilizers[10]. - The chemical products market is anticipated to have significant growth potential due to the steady recovery of the domestic economy and the rebound in key industries such as real estate and new energy[10]. - The company is committed to a "low-cost + differentiation" strategy, focusing on high-quality development through refined management and flexible production[11]. - The company plans to enhance market share by capitalizing on the fertilizer industry's consolidation and transformation cycle while ensuring stable cash flow[11]. - The Guangxi base's compound fertilizer phase one project is expected to be completed and put into operation by the end of this year, establishing a competitive benchmark base in South China[11]. - The company is accelerating the transformation of its marketing model, leveraging big data to enhance integrated service capabilities for large agricultural households[11].

Investment Rating - The report maintains a "Buy" rating for the company with a target price of HKD 5.24, representing a potential upside of 44.68% from the current price of HKD 3.62 [2][3]. Core Insights - The company's revenue for the year 2023 reached RMB 23.475 billion, a year-on-year increase of 1.75%, while the net profit attributable to shareholders decreased by 10.51% to RMB 1.187 billion due to soft supply-demand dynamics and lower prices for urea and other chemical products [1][4]. - The report anticipates a recovery in chemical product prices in 2024, driven by a projected increase in demand and the company's ongoing capacity expansion projects [1][2]. Financial Performance Summary - **Revenue**: RMB 23.475 billion in 2023, up 1.75% from 2022, with forecasts of RMB 23.999 billion in 2024 and RMB 26.427 billion in 2025 [4][5]. - **Net Profit**: RMB 1.187 billion in 2023, down 10.51% from 2022, with projections of RMB 1.484 billion in 2024 and RMB 1.650 billion in 2025 [4][5]. - **Earnings Per Share (EPS)**: RMB 0.969 in 2023, with expected increases to RMB 1.21 in 2024 and RMB 1.35 in 2025 [4][5]. - **Gross Margin**: 17.83% in 2023, slightly down from 18.84% in 2022, with expectations of improvement in future years [1][4]. Business Segment Performance - **Urea Segment**: Revenue increased by 1% to RMB 6.874 billion in 2023, with a 9% rise in sales volume but a 7% decline in average selling price [1]. - **Compound Fertilizer**: Revenue grew by 0.2% to RMB 6.130 billion, with a 16% increase in sales volume offset by a 13% drop in average selling price [1]. - **Methanol**: Revenue rose by 2% to RMB 2.339 billion, driven by a 9% increase in sales volume, although the gross margin was negative at -0.6% [1]. - **Melamine**: Revenue decreased by 19% to RMB 0.784 billion, with a significant drop in gross margin from 49% to 29% [1]. Capacity Expansion Projects - The company is progressing with new capacity projects, including a 500,000-ton nitro fertilizer plant in Henan and a 300,000-ton compound fertilizer plant in Guangxi, both expected to commence operations in 2024 [1][2]. - Additional projects include a 60,000-ton polyoxymethylene project in Xinjiang and an 800,000-ton synthetic ammonia and 1,150,000-ton urea project in Jiangxi, slated for completion by 2025 [1].