On March 29, nitrogen fertilizer industry leader CHINA XLX FERT (01866) delivered a resilient performance report. Adhering to its core strategy of "low cost + differentiation," the company achieved revenue of RMB 25.352 billion, a 9.6% year-on-year increase, and a profit attributable to owners, excluding non-recurring items, of RMB 932 million, up 1.2% year-on-year, through technological upgrades for cost reduction, structural optimization, and overseas expansion. Amid an industry downturn, the company not only maintained stable operations but also achieved critical advancements in its production capacity structure and global footprint. A deeper analysis of its fundamentals reveals three core strengths that are building a long-term moat, highlighting its investment value where "near-term earnings pressure does not alter the long-term thesis."
The expectation for a recovery in the urea price cycle is strengthening, with potential easing of export policies seen as a key catalyst. Signals of marginal improvement are emerging in the domestic urea supply-demand balance. On the supply side, the capacity expansion cycle is nearing its end. According to Dongzheng Derivative Research Institute data, China's urea capacity growth is projected at around 8% in 2025, with new capacity additions expected to slow from 2026 onwards. A more critical variable stems from the international supply side, where escalating tensions in the Middle East are reshaping the global fertilizer supply chain. Iran, the world's second-largest urea exporter with annual exports of approximately 9 million tonnes, accounting for 10% of global trade, faces potential shutdown risks due to geopolitical conflict. Furthermore, the Strait of Hormuz, which handles over 30% of global seaborne trade in fertilizers and raw materials, could cause direct global supply disruptions if obstructed. Drawing parallels to fertilizer price trends during the Russia-Ukraine conflict, the current geopolitical impact on supply could be prolonged, providing substantial support for international fertilizer prices. On the demand side, export policies are anticipated to have an adjustment window after the spring ploughing season. While ensuring supply and stabilizing prices remain the priority during this critical domestic period, leading to expectations of stable short-term urea prices, the consensus market expectation is for policy relaxation post-spring ploughing, driven by rising international prices and widening overseas supply gaps. Dongzheng predicts China's urea export quota could increase by 2-3 million tonnes in 2026 compared to 2025, reaching 7-8 million tonnes. If realized, the domestic urea industry could experience a phase of "volume and price increases" from overseas markets. As the leading domestic urea producer, CHINA XLX FERT is well-positioned to benefit significantly from this industry recovery cycle.
The commissioning of the Jiangxi Phase II project solidifies the cost moat, while capacity expansion builds scale advantages. During an industry cycle trough, cost control is the crucial factor for corporate resilience. CHINA XLX FERT's persistent focus on its "low cost + differentiation" strategy is translating strategic determination into quantifiable competitive advantages. The successful commissioning of the RMB 3 billion Jiujiang Phase II project has further released low-cost, high-quality capacity. Financial reports indicate this project reduces urea production cost at the Jiangxi base by approximately RMB 80 per tonne. This means that even under macro conditions of industry price pressure, the company can maintain stable profit elasticity thanks to its optimized cost structure. Regarding production scale, CHINA XLX FERT's expansion path is clear and systematically planned. Key ongoing projects include: a 570,000-tonne synthetic ammonia plant at the Xinxiang base; a 160,000-tonne melamine and 500,000-tonne high-efficiency compound fertilizer facility at the Xinjiang Zhundong base; and a 1.2 million-tonne synthetic ammonia and 1 million-tonne high-efficiency compound fertilizer plant at the Guangxi Guigang base. According to Guozheng International projections, upon the gradual commissioning of these major bases by 2027, the company's total fertilizer capacity is expected to exceed 13 million tonnes, potentially making it the largest fertilizer producer in China by capacity. The continued realization of scale economies, combined with structural cost advantages, will strongly support the steady increase in the company's market share.
Rising proportion of high-efficiency compound fertilizer + overseas markets: Dual engines unlock a second growth curve. While its traditional fertilizer business remains solid, CHINA XLX FERT is actively building a second growth curve through product portfolio upgrades and global expansion. Domestically, the company initiated a "Product Competitiveness Enhancement Year," focusing on R&D and deployment of high-efficiency fertilizers like humic acid and slow/controlled-release varieties. Leveraging its flexible "one head, multiple tails" production model, which uses self-produced high-efficiency urea as the core nitrogen source, the company has developed a series of high-value-added, high-efficiency compound fertilizer products. Data shows sales of high-efficiency fertilizers increased significantly by 10% year-on-year, with product value-added substantially higher than traditional fertilizers. This not only improves resource utilization efficiency of urea plants but also drives an overall value leap for the fertilizer segment, effectively hedging against the cyclical volatility of single urea products. In overseas markets, the company's globalization strategy is accelerating. In 2025, the proportion of overseas revenue increased significantly by 4 percentage points year-on-year, indicating sustained growth momentum. The operational model centered on the Thailand demonstration base has matured, forming a replicable market expansion template. Looking ahead, the company plans to gradually cover Southeast Asian countries like Vietnam and Laos, while deepening its presence in potential markets such as Central Asia, Australia, and the Netherlands. By capitalizing on export windows, the company has significantly increased the proportion of urea exports, successfully establishing a dual-circulation business pattern encompassing both domestic and international markets. The vast potential of overseas markets opens a new growth ceiling for the company.
In conclusion, high dividends reinforce the baseline for shareholder returns, while anticipated inclusion in the Southbound Stock Connect could act as a catalyst for valuation re-rating. Overall, 2025 represents a peak year for project construction and capital expenditure for CHINA XLX FERT, with concentrated maintenance overlapping with the industry cycle bottom, creating temporary pressure on short-term earnings. However, from a capacity cycle perspective, major projects will gradually enter their production and contribution phase starting in 2026, suggesting the company may reach an inflection point for profit recovery. Goldman Sachs forecasts the company's net profit will rebound to RMB 1.622 billion in 2027, a 63% increase from 2026. Guozheng International projects net profit could reach RMB 2.82 billion in 2027, indicating strong support for profit elasticity. On the valuation front, the company recently clarified its dividend policy for 2025-2027, committing to a distribution ratio of no less than 25% of audited net profit attributable to owners, with a minimum dividend per share of RMB 0.24. Maintaining a relatively high dividend level amidst peak capital expenditures fully demonstrates management's confidence in the stability of future cash flows and the sustainability of profitability. Concurrently, the company has intensified share buybacks, repurchasing a cumulative HKD 71 million since the second half of 2024, further strengthening shareholder return expectations. Notably, as the earnings bottom is gradually confirmed and profit recovery expectations intensify, the anticipation of the company's inclusion in the Southbound Stock Connect is expected to become a significant catalyst for valuation re-rating. The combination of stable shareholder returns and expectations for improved liquidity makes the potential for valuation repair worth ongoing attention. Companies with cost advantages, scale effects, and strategic resilience during an industry trough are often poised for a stronger recovery post-industry consolidation. This encapsulates the long-term value proposition of CHINA XLX FERT.
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