[Phosphorus Chemical Industry] – Briefly explain phosphorus again.

Current stock price: RMB 34.51 (closing price on 2026.3.24) 2025 Quarterly Net Profit Attributable to Shareholders (in RMB billions): Q1: 12.89 Q2: 14.72 Q3: 19.68 Q4: 4.27 Full-year total: 51.56 billion 2025 Net Profit Margins: Q1: 9.9% Q2: 12.3% Q3: 15.6% Q4: 3.95% *The low Q4 net profit margin reflects a one-time accrual. Subsequent estimates have been revised upward under a more optimistic assumption. 2. Then make some basic assumptions: - Overall fertilizer gross margin declined by 3.55% year-on-year; phosphate fertilizer gross margin declined by 1.87% year-on-year; - From Q4 2025 to Q1 2026, sulfur—the core raw material for phosphate fertilizer—remained at high prices; - Gross margin on overseas sales in 2025: 47.25%; gross margin on domestic sales: 21.55%. Therefore: - Phosphate fertilizer export ban from March to August 2026: No high-margin overseas sales in Q2 and Q3, pulling overall gross margin toward domestic levels. - Sulfur price doubled: Raw material price increases in 2025 added RMB 1.752 billion to operating costs; Q4 net profit margin already reflects this cost pressure. Based on the above, assumptions are as follows: Revenue: Quarterly revenue in 2026 remains flat year-on-year (increased domestic volume offsets reduced exports). Net profit margin: ・ Q1: A simple estimate of 7%, incorporating 2025 Q1 and Q4 margins, rising input costs, and the export ban effective from March 2026. ・ Q2 & Q3: Export ban + high input costs → conservatively assume net profit margin remains at 7%. ・ Q4: Partial export quotas resume after September → net profit margin recovers.

Fertilizer prices rose—why did one company earn RMB 209 more per ton, while another earned only RMB 79 more? | Cyclical Strategy | Who’s truly profiting?

Project Before Price Increase After Price Increase (+10%) Price per ton RMB 3,000 RMB 3,300 Cost per ton RMB 1,100 ~RMB 1,191 (mostly fixed, slight increase) Gross profit per ton RMB 1,900 ~RMB 2,109 Additional profit per ton — +RMB 209 Xinyangfeng: Project Before Price Increase After Price Increase (+10%) Price per ton RMB 2,300 RMB 2,530 Cost per ton RMB 2,020 ~RMB 2,171 (raw materials rise in tandem) Gross profit per ton RMB 280 ~RMB 359 Additional profit per ton — +RMB 79 Gap: RMB 209 vs. RMB 79 — roughly 2.6×. The mechanism is clear: YANHU GROUP’s cost structure is largely fixed; thus, nearly all incremental revenue from price hikes flows directly into profit. Xinyangfeng, however, procures raw materials on the open market—when upstream prices rise, its procurement costs rise in lockstep, consuming most of the incremental revenue. In one sentence: Companies with fixed costs profit directly from price hikes; those with market-linked costs merely act as intermediaries for upstream suppliers. IV. This pattern is not unique to the fertilizer industry. Similar logic has repeatedly emerged across other cyclical sectors. During the 2021 coal boom, integrated coal producers with captive mines and pure coal trading firms both faced soaring coal prices—but their profit elasticity and stock price performance diverged sharply. Firms with owned mines enjoyed fixed costs; price gains flowed straight to the bottom line. Trading firms, forced to buy coal on the spot market before reselling, saw only narrow margin expansion. Likewise, during copper price rallies, copper miners with owned mines and copper fabricators exhibited markedly different performance. The root cause lies in cost structure: companies with high fixed-cost ratios possess inherent profit leverage during price-up cycles; those with high variable-cost ratios see much of their price-driven revenue gains offset by rising input costs. V. Why has the market reacted slowly? Yanhu Group’s 2025 net profit attributable to shareholders reached RMB 8.476 billion, up 81.8% year-on-year, whereas Xinyangfeng’s profit growth lagged far behind. This earnings-growth gap is already pronounced—yet stock price divergence remains only about 1×, failing to fully reflect the disparity. Three reasons explain this: First, institutional portfolio rebalancing takes time. Shifting from “buying the fertilizer sector” to “buying only resource-side players” requires rebuilding financial models and securing internal approvals—typically taking one to two quarters. With 2025 annual reports just released, systematic reallocation has yet to begin. Second, retail investor funds still allocate based on sector-level logic. Large pools of capital continue buying into the “fertilizer price hike” theme without distinguishing between resource-owning and non-resource firms—providing liquidity support to processing enterprises. Third, historical inertia. During the 2021–2022 fertilizer rally, processing firms also rose alongside the sector; many investors remain anchored in that “broad-based rally” memory and haven’t recognized how supply-side structures have fundamentally changed this cycle. Historically, such pricing misalignments tend to correct once quarterly earnings data provide empirical validation. VI. Practical implications for investors If you currently hold fertilizer-related stocks, consider this question seriously: Does your company own its raw material sources—or does it rely on external procurement? Companies with captive mines or resources possess natural profit leverage in this round of price hikes: price increases translate directly into profit growth. Pure processing firms, facing synchronized raw material cost inflation, have limited scope for margin improvement—and may even see margins squeezed if downstream price pass-through proves sluggish.

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