On April 13, CHINA XLX FERT (01866) issued a positive profit alert for the first quarter: revenue is projected to reach 6.7 to 7.0 billion yuan, representing a year-on-year increase of 15% to 20%; net profit attributable to shareholders is expected to be between 280 and 300 million yuan, a substantial surge of 41% to 52% compared to the same period last year. The following day, the company's stock price rose over 6% during the trading session, with a turnover exceeding 60 million Hong Kong dollars. Analysis indicates that this round of profit growth results from a confluence of favorable factors in pricing, costs, and business structure.
On the pricing front, global fertilizers have entered their strongest upward cycle in recent years. Geopolitical conflicts in the Middle East have driven international urea prices to soar from $390 per ton at the beginning of the year to $780 per ton by early April, a 100% increase. With domestic urea prices around 1,850 yuan per ton, the price differential between domestic and international markets has reached approximately 3,000 yuan per ton, creating substantial arbitrage opportunities for companies with export advantages.
Regarding costs, coal prices have remained moderate, providing a solid foundation for profit recovery. In terms of structure and capacity, the Phase II project in Jiujiang has commenced operations smoothly, and the Phase I chemical new materials project at the Xinxiang base has entered trial production. The Jiujiang base alone has reduced urea production costs by about 80 yuan per ton. Sales of high-efficiency fertilizers increased by 10%, and the proportion of overseas revenue rose by 4 percentage points year-on-year. This diversified business structure effectively mitigates the cyclical volatility associated with a single urea product.
Beyond the broader industry recovery, the fundamental reason CHINA XLX FERT can translate external tailwinds into tangible profits lies in its long-established integrated operational capabilities. The company has deeply pursued a "low-cost + differentiated" strategy. Through techniques like blended coal combustion and energy-saving technological upgrades, its comprehensive energy consumption is over 10% lower than the industry average. This allows for amplified profit elasticity during upturns and enhanced risk resistance during downturns.
More critically, the company has evolved from a single fertilizer producer into a comprehensive coal-chemical platform. Revenue from the chemical segment grew 21% year-on-year in 2025, effectively counterbalancing the cyclical fluctuations of the fertilizer business. In terms of capacity planning, capital expenditure is expected to peak in 2025, with major projects progressively commencing operations from 2026 onwards. The Jiujiang and Xinxiang projects are already yielding results, while the new Guangxi and Zhundong bases are advancing as scheduled. Each new base continues the fully self-sufficient model covering the entire chain from "coal - syngas - end products," avoiding the cost erosion associated with purchasing intermediate products. Total capacity is forecast to exceed 14 million tons upon the full operational release of all projects under construction by 2027.
According to Goldman Sachs projections, the company's net profit is expected to rebound to 1.622 billion yuan in 2027, a 63% increase from 2026. Guozheng International estimates net profit could potentially reach 2.82 billion yuan in 2027.
In summary, CHINA XLX FERT's profit recovery is not a one-off event but a result of the overlapping capacity and industry cycles. Projects constructed during the industry's low point are set to ramp up production precisely during the current upturn, creating an "operating leverage" effect where profit growth significantly outpaces revenue growth.
Perhaps more noteworthy is the shift in valuation logic. Historically, the fertilizer sector was viewed by the market as a typical cyclical industry, with investors accustomed to price-to-earnings (P/E) ratios of 5 to 8 times. The uniqueness of the current cycle lies in the industry's transition from being "price-driven" to "value-driven." On one hand, under the national food security strategy, the strategic importance of fertilizers is being redefined, with significant policy support providing a floor. On the other hand, a profit model reliant solely on product price fluctuations is unsustainable. Companies capable of truly navigating cycles must possess stable cash flows, clear shareholder return policies, and predictable growth trajectories.
CHINA XLX FERT is demonstrating this transition through a series of definitive actions. The company has outlined its dividend policy for 2025 to 2027, committing to a distribution ratio of no less than 25% of its audited net profit attributable to shareholders, with a minimum dividend per share of 0.24 yuan. Maintaining a relatively high dividend payout level amidst significant capital expenditure reflects management's confidence in the stability of future cash flows and the sustainability of profitability. Furthermore, the company has intensified its share buyback efforts, repurchasing a cumulative 71 million Hong Kong dollars since the second half of 2024, further reinforcing shareholder return expectations.
Consequently, a defensive value profile characterized by "high dividends, stable operations, and strong cash flow" is becoming clearly defined. For capital seeking exposure to the fertilizer industry recovery while wary of pure cyclical volatility, CHINA XLX FERT offers a rare combination: industry beta provides earnings elasticity, while company alpha offers a margin of safety through high dividends and growth potential through capacity expansion. As the market gradually redefines it from a "cyclical stock" to a "high-dividend + growth" composite asset, the upward shift in its valuation multiple finds fundamental support. CHINA XLX FERT is no longer merely a cyclical fertilizer product subject to market whims, but a value-growth enterprise built on a foundation of low-cost integration and a clear commitment to shareholder returns.
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