Key takeaway

The company maintained stable operations in 1H26, with net profit attributable to shareholders of the parent company increasing YoY. It delivered relatively resilient earnings despite adverse external conditions, particularly the sharp increase in sulfur prices. Meanwhile, the company plans to distribute an interim cash dividend of RMB2 for every 10 shares. It has maintained stable dividends in recent years, delivering strong returns to shareholders. In the medium to long term, we remain optimistic that the company will continue to maintain a stable operating strategy, leverage its integrated mining and chemical industry chain advantages, and achieve sustained improvement and upgrading in corporate governance.

Event

1) The company released its 1H26 results, reporting revenue of RMB22.821bn, down 8.92% YoY; net profit attributable to shareholders of the parent company of RMB2.934bn, up 6.14% YoY; and net profit excluding non-recurring gains and losses of RMB2.874bn, up 6.50% YoY. In 2Q26, the company reported revenue of RMB10.840bn, down 9.85% YoY and 9.52% QoQ; net profit attributable to shareholders of the parent company of RMB1.510bn, up 2.41% YoY and 5.96% QoQ; and net profit attributable to shareholders of the parent company excluding non-recurring gains and losses of RMB1.482bn, up 3.80% YoY and 6.43% QoQ.

2) The company also announced its proposed profit distribution plan for 1H26. It plans to distribute a cash dividend of RMB2 for every 10 shares, tax inclusive, for an estimated total cash distribution of approximately RMB365mn.

Quick Take

In 1H26, revenue from phosphate fertilizers, urea, compound fertilizers, polyoxymethylene, and feed-grade calcium products was RMB8.16bn/RMB2.40bn/RMB4.16bn/RMB560mn/RMB1.31bn, up 16.7%/down 6.6%/up 33.0%/down 6.4%/up 26.8% YoY, respectively.

Sales volume was 2.156mn/1.381mn/1.237mn/0.058mn/0.258mn metric tons, down 2.8%/down 5.8%/up 25.7%/up 3.2%/up 2.1% YoY, respectively. Average selling prices excluding tax were RMB3,785/RMB1,737/RMB3,362/RMB9,664/RMB5,085 per metric ton, up 20.1%/down 1.0%/up 5.8%/down 9.3%/up 24.1% YoY, respectively. The gross margin of phosphate fertilizers declined by approximately 10 pcts YoY to around 29%, weighed down by the sharp increase in sulfur costs. Although urea prices remained low, lower coal costs provided a partial offset, resulting in a marginal YoY improvement in profitability. The average selling price of phosphate fertilizers excluding tax rose 20.1% YoY, while the average procurement price of sulfur surged 88.5% YoY. The company was unable to fully pass on the higher costs, narrowing the gross margin of phosphate fertilizers. Overall, the company recorded a gross margin of 20.9% and a net margin of 13.7% in 1H26, up 1.7 pcts and 1.6 pcts YoY, respectively. Its underlying profitability improved steadily.

In 2Q26, revenue declined QoQ mainly due to the continued contraction of the trading business. However, net profit attributable to shareholders of the parent company still increased by approximately 6% QoQ, while gross margin improved by nearly 3 pcts QoQ. This indicates stronger QoQ profitability in the core fertilizer business, supported by cost pass-through and expense reductions. On a YoY basis, the company still achieved positive growth in net profit attributable to shareholders of the parent company despite the sharp increase in sulfur prices and a temporary tightening of the export schedule. This highlights its operational resilience.

In 1H26, the company continued to pursue its operating strategy of “full-capacity production, rapid turnover, low inventory, and risk prevention.” Its major production facilities maintained high utilization rates, with 40 key facilities achieving their long-cycle operating targets, while the overall energy consumption of major products remained stable or declined. The company’s debt-to-asset ratio declined from over 90% in 2018 to 47.5% as of 1H26, while its long- and short-term borrowings fell from RMB31.3bn in 2019 to RMB10.8bn as of 1H26. In addition, the company maintained its prudent dividend policy, and we are optimistic about its focus on shareholder returns and continued governance improvements.

In 1H26, associate Julin New Materials obtained the mining rights for the Wanchang phosphate mine in Zhenxiong County, and construction fully commenced on the supporting mining project with annual capacity of 10mn tonnes and resource reserves of approximately 2.4bn tonnes. The phosphate ore flotation project with annual capacity of 4.5mn tonnes is progressing steadily and is expected to be completed and commissioned by the end of 2026, enhancing the utilization of medium- and low-grade phosphate ore and the supply of highgrade phosphate concentrate. We are optimistic about the company's continued ability to leverage its fully integrated mining and chemical industry chain advantages. With the largest phosphorus mine and phosphate fertilizer production capacity among domestic listed companies, it effectively coordinates both domestic and international markets. Against the backdrop of tight phosphorus mine supply-demand balance, stable fertilizer supply with optimized production, and the growing strategic importance of phosphorus chemicals, the company is positioned to achieve steady improvement in operational performance.

Earnings forecast and core investment view: We forecast net profit attributable to shareholders of the parent company of RMB4.881bn/RMB5.497bn/RMB5.900bn in 2026-2028, respectively, with EPS of RMB2.68/RMB3.02/RMB3.24, corresponding to current P/E multiples of 11.47x/10.19x/9.49x. We are optimistic that the company will maintain its prudent operating strategy, continue to leverage the advantages of its integrated mining and chemicals value chain, and further enhance the quality and effectiveness of its corporate governance.

Risks:

(1) Risk of unexpected fluctuations in product and raw material prices: The company's core profit sources are phosphorus-based chemicals, phosphate fertilizers, and nitrogen fertilizers. The prices of these bulk chemicals are significantly influenced by global macroeconomic conditions, grain prices, energy costs (including sulfur and synthetic ammonia), and supply-demand dynamics, demonstrating strong cyclical characteristics. If raw material and product prices fluctuate significantly, it may affect the profitability of certain segments of the company;

(2) Risks of stricter safety and environmental policies: Under China's "Dual Carbon" goals and the Yangtze River ecological protection strategy, environmental standards in the chemical industry continue to tighten. As a key industry under safety and environmental supervision, the phosphorus chemical industry may face impacts from increasingly stringent safety and environmental policies as well as rising compliance costs, potentially affecting operational indicators such as production capacity utilization rates.

(3) Risks of international trade friction and export policy changes: As a major global exporter of phosphate and nitrogen fertilizers, China faces uncertainties stemming from international geopolitical conflicts, trade barriers (such as tariffs and anti-dumping investigations), and adjustments to domestic fertilizer export inspection policies.