CICC: Initiates SINOFERT (00297) with "Outperform" rating, target price HK$1.60

CICC released a research report initiating coverage on SINOFERT (00297) with an "Outperform" rating and a target price of HK$1.60, corresponding to 30.6% upside. The target price is based on the relative valuation method, corresponding to 7.7/7.1x P/E for 2026/2027. The bank expects the company's EPS for 2026/2027 to be RMB0.18/0.19, with a CAGR of 2.7% from 2025 to 2027. The company is one of China's core fertilizer traders. CICC's main points are as follows: Leading domestic distributor and service provider of agricultural inputs, one of the main channels for potash imports The company is a leading domestic distributor and service provider of agricultural inputs. By 2025, it has built a distribution service network and warehousing and logistics network covering 96% of agricultural counties and cities nationwide, with over 50,000 agricultural cooperative distribution outlets. The company has over 60 years of international trade experience and has established long-term strategic partnerships with companies such as Canpotex and Jordan Phosphate Mines, making it one of the main channels for potash imports in China. In 2025, the basic business segment where the company's potash business is located recorded a segment profit of RMB874 million, accounting for 54% of total segment profit. Advancing "bio+" strategic transformation, phosphate rock capacity expansion continues to progress The company has built a R&D system based on biotechnology and is advancing the commercial transformation of biofertilizers through an integrated R&D, production, sales, and service operating system. In 2025, biofertilizer sales volume and gross profit reached 1.54 million tonnes and RMB790 million, respectively, with CAGRs of 40% and 42% from 2022 to 2025. On the production side, the Meizushao phosphate rock expansion project with an integrated mining and processing capacity of 2.2 million tonnes/year is steadily advancing. The bank believes that phosphate rock resources are expected to further play a synergistic role. Focusing on dividends to enhance shareholder returns Since 2021, the company's dividend payout ratio has consistently remained above 30%. Based on the share price on September 28, 2026, the 2025 dividend yield reached 5.7%. The bank believes that against the backdrop of stable operations and abundant cash flow, the company is expected to safeguard shareholder returns. Biofertilizer sales growth helps stabilize profitability CICC noted that the market is concerned about the impact of the sustainability of the potash industry's prosperity on profitability. The bank believes that the potash industry's prosperity is expected to continue in 2027, and the growth in biofertilizer sales will help stabilize the company's profitability. Earnings forecast and valuation The bank expects the company's EPS for 2026/2027 to be RMB0.18/0.19, with a CAGR of 2.7% from 2025 to 2027. Currently, the company's share price corresponds to 5.9/5.4x P/E for 2026/2027, while the average P/E for A-share comparables in 2026 is 11.3x. Considering the Hong Kong stock liquidity discount, the bank assigns the company a 2026 P/E of 7.7x, initiates coverage with an "Outperform" rating, and a target price of HK$1.60, corresponding to 30.6% upside. Potential catalysts include potash prices rising more than expected and biofertilizer sales growth exceeding expectations. Risks include a significant decline in potash prices, fluctuations in contract prices, intensifying competition in the compound fertilizer market, and the impact of external environment fluctuations on import channels.