Investment Rating - The report assigns a Buy rating to Sinofert Holdings (297 HK) with a target price of HKD 1 40, implying a 52% upside from the current price [1][4] Core Views - Sinofert Holdings is positioned as a "national team" in the fertilizer industry, leveraging its strong state-owned enterprise background and integrated R&D, procurement, production, and sales capabilities [1][2] - The company is transitioning to become a leader in bio-fertilizers and soil health, with its bio-fertilizer business accounting for 36% of revenue in 2023 and expected to drive future growth [2][8] - The report forecasts revenue growth of 5% annually from 2024 to 2026, with net profit growth of 34%, 10%, and 10% respectively, driven by the high-margin bio-fertilizer segment [2][32] Business Overview - Sinofert is a leading fertilizer distributor in China with a vast network covering 95% of agricultural land, including 22,000 agricultural counties, 18,000 townships, and over 40,000 township stores [1][8] - The company has over 30 years of experience in international fertilizer trade and is a key player in China's potassium fertilizer reserves, ensuring stable supply and pricing [2][8] - In 2023, the company launched its "Bio+" strategy, focusing on nutrient efficiency, bio-fertilizers, and soil health, supported by a RMB 200 million R&D center [8][15] Financial Performance - Revenue in 2023 was RMB 21 7 billion, down 6% YoY, while net profit dropped 44% to RMB 626 million due to a RMB 520 million impairment loss from a joint venture [18] - Excluding the impairment, adjusted net profit would have been RMB 1 21 billion, up 7 3% YoY [18] - The company's gross margin improved to 10 4% in 2023, driven by a shift towards higher-margin bio-fertilizers and away from low-margin nitrogen fertilizers [18] Industry Outlook - China's fertilizer usage has been declining since 2015, with a focus on reducing overuse and improving efficiency, creating opportunities for high-efficiency and bio-fertilizers [20][21] - The global potassium fertilizer market is expected to grow, with China's demand for potassium chloride projected to increase from 16 53 million tons in 2023 to 18 05 million tons by 2027 [25][26] - The bio-fertilizer industry in China is rapidly expanding, with the market size expected to reach RMB 200 billion by 2030, driven by government policies promoting sustainable agriculture [29][30] Valuation - The report values Sinofert at 10 8x 2024E PE, below the A-share fertilizer industry average of 11 6x, reflecting its unique position in potassium fertilizer imports and growth potential in bio-fertilizers [32][33] - Key comparable companies include Yunnan Yuntianhua (600096 SH) and Qinghai Salt Lake Industry (000792 SZ), which trade at 7 9x and 14 7x 2024E PE respectively [33]
中化化肥：化肥行业“国家队”，大力发展农业新质生产力