Cyclical rebound with capacity release superimposed, profit core expected to shift upwards. Revaluation of CHINA XLX FERT (01866) is accelerating.

On April 13, CHINA XLX FERT (01866) announced its first quarter earnings: expected revenue of 6.7 to 7 billion yuan, a year-on-year increase of 15% to 20%; net profit attributable to parent company of 280 to 300 million yuan, a significant increase of 41% to 52% year-on-year. The next day, the stock price rose more than 6% during trading, with a trading volume exceeding 60 million Hong Kong dollars. According to observations, the company's current profit growth is the result of resonance between price, cost, and structure. On the price side, the global fertilizer market is currently experiencing the strongest upward trend in recent years. The geopolitical conflict in the Middle East has driven international urea prices from 390 US dollars per ton at the beginning of the year to 780 US dollars per ton in early April, an increase of 100%. Domestic urea prices are around 1850 yuan per ton, with a price difference of 3000 yuan per ton between domestic and foreign markets, opening up huge arbitrage opportunities for companies with export advantages. On the cost side, coal prices are stable, providing support for profit recovery. In terms of structure and production capacity, the Jiujiang Phase II project has been successfully put into operation, and the first-phase project of chemical new materials at the Xinxiang base has entered the trial production stage, reducing the cost of urea per ton by about 80 yuan at just the Jiangxi base; efficient fertilizer sales have increased by 10%, overseas income proportion has increased by 4 percentage points year-on-year, and diversified layout effectively hedges the cyclical fluctuations of single urea products. In addition to the recovery in the industry outlook, the fundamental reason why Xinlianxin can transform external benefits into real profits lies in its long-term integrated operational capability. The company focuses on the "low cost + differentiation" strategy, reducing comprehensive energy consumption by more than 10% below the industry average through coal blending and energy-saving technological transformation, doubling profit elasticity during the upward cycle, and strengthening risk resistance during the downward cycle. Even more crucially, the company has transformed from a single fertilizer enterprise to a one-stop coal chemical platform. The chemical section's revenue is expected to increase by 21% in 2025, effectively hedging against the cyclical fluctuations of the fertilizer business. In terms of production capacity layout, 2025 is the peak of capital expenditure, and from 2026 onwards, various major projects will enter the commissioning and release period. The Jiangxi and Xinxiang projects have already shown effective results, and the Guangxi and Zhundong two major new bases are progressing as planned. Each new base continues the "coal-synthesis gas-terminal products" full chain self-supply model, avoiding the cost erosion of purchasing intermediate products. It is estimated that after the full release of production capacity under construction in 2027, the total production capacity will exceed 14 million tons. According to Goldman Sachs' forecast, the company's net profit in 2027 will rebound to 1.622 billion yuan, an increase of 63% compared to 2026; Guozi Guoji predicts that the net profit in 2027 is expected to reach 2.82 billion yuan. In summary, Xinlianxin's profit recovery is not a one-time pulse, but a superimposition of production capacity cycles and prosperity cycles - projects are completed in the industry's trough period and released during the upturn in prosperity, forming a "operational leverage" effect where profit growth far exceeds revenue growth. More importantly, the valuation logic is shifting. In the past, the fertilizer industry was viewed by the market as a typical cyclical sector, and investors were accustomed to pricing at 5 to 8 times PE ratio. However, the uniqueness of this round of market lies in the industry's transition from "price-driven" to "value-driven". On one hand, under the national food security strategy, the strategic position of fertilizers has been redefined, with significant policy support effects. On the other hand, the profit model based solely on product price fluctuations is unsustainable. Companies that can withstand the cycle must have stable cash flow, clear shareholder returns, and predictable growth paths. Xinlianxin is verifying this transformation through a series of deterministic actions: the company has set a dividend policy for 2025 to 2027, promising that the distribution rate of audited net profit attributable to parent company will not be less than 25%, and the dividend per share will not be less than 0.24 yuan. While maintaining a high level of dividend payout against the backdrop of high capital spending, the confidence in the robustness of future cash flows and sustainable profitability is fully reflected by the management. At the same time, the company continues to increase repurchase efforts, with a cumulative repurchase of 71 million Hong Kong dollars since the second half of 2024, further strengthening shareholder return expectations. As a result, a defensive value profile of "high dividends, stable operations, strong cash flow" is becoming increasingly clear. For funds that both want to participate in the recovery of the fertilizer industry and dislike pure cyclical fluctuations, Xinlianxin offers a rare combination: industry beta brings performance elasticity, while company alpha provides safety margin through high dividends and growth potential through production capacity release. As the market gradually redefines it from a "cyclical stock" to a "high dividend + growth-oriented" composite target, there is now fundamental support for the upward shift in valuation center. Xinlianxin is no longer just a fertilizer cyclical play relying on the heavens for sustenance, but rather a value growth target based on low cost integration and shareholder returns as the bottom line.