As the calendar just turned to 2026, while the market was still evaluating the annual performance of various assets, CHINA XLX FERTILIZER ("XLX Fertilizer") (01866), a leader in China's fertilizer industry, was already conveying a strong signal of value to the market through a series of intensive and determined actions. Right at the beginning of 2026, XLX Fertilizer initiated a concentrated share buyback program, having already spent over HKD 20 million to repurchase 2.286 million shares by today (the date of writing).
More notably, on the evening of January 12, XLX Fertilizer announced a clear share repurchase plan, stating that from January 13, it intends to buy back up to 10% of its issued shares within the year at a cost not exceeding HKD 200 million. In the author's view, in the secondary market, buybacks using real money reflect a listed company's long-term confidence in its own development. Particularly at a time when the fertilizer industry has undergone deep adjustments and signals of an inflection point are emerging, this series of actions resembles a "declaration of value" from management, underpinned by XLX Fertilizer's profound confidence in its ability to navigate cycles and its future growth potential.
The underlying logic for the intensive buybacks is the resonance of a cyclical bottom and accelerating endogenous growth. When a listed company conducts a share buyback, it is undoubtedly an active move to release a positive signal to the market. Generally, companies whose stock prices have been under pressure for an extended period are more willing and motivated to repurchase shares. Looking back at XLX Fertilizer, a noteworthy context is that its share price had already experienced significant gains for two consecutive years, especially in 2025, when it surged by 135% during the year.
Despite the stock already being in an upward trend, XLX Fertilizer still chose intensive buybacks, which, in the author's opinion, is not merely a display of confidence but also conveys management's judgment that a discrepancy still exists between the company's intrinsic value and its market valuation. In summary, XLX Fertilizer's confidence likely stems from two aspects: firstly, the fertilizer industry has reached a cyclical bottom, with a recovery trend becoming increasingly clear; secondly, the company's own cost advantages have built a competitive "moat."
Regarding the industry, in the first three quarters of 2025, the domestic fertilizer market continued to be characterized by oversupply, with prices of products including urea remaining low. However, over time, recent market conditions seem to be showing positive changes. Around the New Year, domestic urea prices first experienced narrow fluctuations before turning firm and rising, with increases ranging from 20 to 70 yuan per ton. Comparatively, the average ex-factory price of urea in the first week after the New Year was around 1,700 yuan, about 100 yuan higher than the price a year earlier.
Behind the market warming, there are certainly short-term factors such as post-holiday restocking demand and sentiment-driven buying. Looking at a longer time cycle, this round of price rebound might be a prelude to the emergence of a new industry inflection point. Previously affected by homogenization and cut-throat competition, the emergence of new production capacity led to a wave-like decline in product prices, and the entire industry experienced a prolonged period of bottoming out. Although a complete reversal of the domestic supply-demand situation is difficult in the short term, under the guidance of "anti-involution" policies and with positive factors such as some outdated, small-scale capacity reducing output or even exiting the market due to operational pressures, the trend of urea prices gradually rising from the bottom is expected to continue.
Furthermore, the policy direction of the state using export quotas to digest excess capacity is also expected to continue benefiting XLX Fertilizer in the long term. In 2025, China's urea export policy was precisely regulated under the principle of "domestic priority, appropriate exports," forming a refined management system through the batch issuance of quotas throughout the year. As a key national fertilizer supply guarantee enterprise, XLX Fertilizer's urea export volume in the first half of 2025 accounted for over 10% of the country's total exports. Considering that XLX Fertilizer has the largest single-unit urea scale in the country and will have new capacity intensively commissioned this year and next, the company holds a significant advantage under the policy orientation where quota allocation is weighted heavily on "completion of national reserve tasks + production compliance rate."
Amid geopolitical conflicts causing disruptions, urea futures in the international market have risen significantly recently. Looking ahead, on the demand side, India currently has strong demand for urea imports, while regions like Australia, Europe, and the US also have expected import demand. On the supply side, due to the further escalation of tensions in Iran since the start of the year, public information indicates that the country has recently closed all seven of its ammonia and urea production facilities. If its exports are subsequently hindered, the impact on the international market will intensify. Although the fifth batch of domestic export quotas for the year has not yet been issued, combined with market analysis, institutions predict that China's total urea export quota this year could increase by another 2-3 million tons compared to last year, reaching 7-8 million tons. Positioned within this context, XLX Fertilizer is poised to benefit deeply due to its prominent market position.
Beyond seizing incremental industry opportunities, XLX Fertilizer's own performance in cost control is also commendable. Data shows that, thanks to the company's consistent cost-reduction and efficiency-enhancement initiatives, all of XLX Fertilizer's facilities have previously completed technical upgrades, achieving a coal conversion efficiency exceeding 99.7%, and its urea manufacturing cost has been more than 10% below the industry average for many consecutive years. As the industry begins to feel a "warm breeze," XLX Fertilizer, which already possesses outstanding scale and cost advantages, will naturally benefit significantly, which perhaps partly explains why the company wasted no time in initiating consecutive share buybacks at the start of the New Year.
The commissioning of new projects is expected to significantly enhance profitability, indicating the leading fertilizer producer has no "growth ceiling." If the warming industry cycle provides the "favorable timing and conditions" for the company's bold buybacks, then XLX Fertilizer's own imminent entry into a new phase of capacity release and further cost optimization constitutes the "human harmony" for the continued growth of its future investment value. A common concern in the secondary market regarding traditional cyclical leaders often revolves around the visibility and sustainability of their growth. However, in the author's view, XLX Fertilizer is demonstrating through a series of precise strategic layouts and continuous technological innovation that it is far from hitting a "growth ceiling."
In terms of deploying advanced production capacity, the second-phase project of XLX Fertilizer's Jiujiang base was successfully commissioned in the third quarter of last year. Reportedly, this project uses more efficient, environmentally friendly, and energy-saving process technology, which can reduce comprehensive production costs by 10% under full urea production load. Similarly, the company's chemical new materials project at its Xinxiang base is set to commence production by the end of the first quarter of this year. Upon operation, XLX Fertilizer's urea production scale will further expand, helping to effectively reduce its urea production costs. Additionally, two new bases in Zhundong, Xinjiang, and Guigang, Guangxi, are steadily progressing. It is expected that by the end of 2027, all ongoing capacity construction will be fully operational. At that point, XLX Fertilizer's cash flow scale will be sufficient to cover capital expenditures, thereby forming a virtuous cycle of "investment, output, development."
With growth momentum poised to enter a period of accelerated release, and looking back at the current stage XLX Fertilizer is in, this can, in a sense, be regarded as a strategic accumulation period before a leap. Admittedly, for external investors unfamiliar with XLX Fertilizer, accurately predicting the company's long-term investment value at this stage is not easy. However, for XLX Fertilizer's management, the high certainty and significant potential of the company's subsequent growth are undeniable facts. Even though the stock price has already experienced a round of increases, substantial room for further gains remains in the face of strong growth expectations. This is likely the primary reason behind XLX Fertilizer's ultimate decision to continue intensifying its buybacks.
In conclusion, the author believes that XLX Fertilizer's current buyback actions can be understood as an active "value marking" by the company at a critical stage of its own growth. It clearly communicates to the market management's firm optimism regarding the industry's recovery prospects and the company's own growth trajectory. Under the dual effects of optimizing industry supply-demand dynamics, increasing export expectations, and the orderly release of its own advanced capacity coupled with expanding cost advantages, XLX Fertilizer's growth narrative is set to unfold with greater depth.
