CICC: Maintains "Outperform" rating on CHINA XLX FERT (01866) with a target price of HK$14.50

CICC released a research report maintaining its "Outperform" rating on CHINA XLX FERT (01866) with a target price of HK$14.50. The bank kept its 2027 net profit forecast unchanged. The bank is optimistic that sales growth in urea and compound fertilizers will drive profit growth. The current share price corresponds to 7.1x/5.1x P/E for 2026/27, and the target price corresponds to 10.7x/7.7x P/E for 2026/27, implying 51.8% upside from the current share price. CICC's main views are as follows: 3Q26 results in line with market expectations The company announced its 3Q26 results. In the first three quarters of 2026, the company achieved operating revenue of RMB23.047 billion, up 28.3% year on year; net profit attributable to shareholders was RMB1.138 billion, up 42.3% year on year, in line with market expectations. In 3Q26, the company achieved operating revenue of RMB7.307 billion, up 37.9% year on year, and net profit attributable to shareholders of RMB217 million, up 8.3% year on year. By product, urea revenue grew, and the share of high-value-added products in the chemicals segment increased In 3Q26, urea achieved operating revenue of RMB2.376 billion, up 80.2% year on year and up 17.6% quarter on quarter. Benefiting from growth in export volume and increased sales of high-value-added black urea products, the average urea selling price rose 4% year on year to RMB1,851/tonne; affected by concentrated maintenance and rising coal prices, the gross margin fell 9.8 percentage points year on year to 16.8%. Compound fertilizer achieved operating revenue of RMB1.343 billion. A delayed autumn fertilizer stocking pace led to postponed downstream demand release. Affected by rising raw material costs and marketing reforms, the average compound fertilizer selling price rose 8% year on year to RMB2,755/tonne. Melamine, DMF, and polyoxymethylene operating revenue grew 3.6%, 80.8%, and 18.2% year on year to RMB177 million, RMB379 million, and RMB120 million, respectively; gross margins rose 0.8, 6.2, and 9.1 percentage points year on year, respectively. The chemicals segment leveraged the advantages of coal-to-methanol integration and flexible adjustment, increasing the share of high-value-added products. Capacity expansion progressing steadily; equity incentive plan demonstrates confidence According to the company's announcement, in September, the urea unit of the new chemical materials project at the Xinxiang base was put into operation, driving down unit production costs of liquid ammonia and urea at the Xinxiang base by RMB45 and RMB26, respectively. As of 3Q26, the Xinjiang Zhundong project entered the joint commissioning stage, and construction at the Guangxi base continued to advance; the two projects are scheduled to be put into operation in 4Q26 and 3Q27, respectively. The bank believes that steady progress in capacity expansion is expected to continue driving the company's growth. On October 26, the company announced an equity incentive plan, with vesting conditions that 2027 and 2028 operating revenue grow 5% and 15%, respectively, compared with 2026, or net profit be no less than RMB1.8 billion and RMB2.0 billion, respectively. The bank believes that the equity incentive is expected to motivate the team, and the vesting conditions reflect the company's confidence in medium-term development. Risk factors A sharp decline in urea prices; progress on new urea capacity falling short of expectations.