Dongfang Securities: The cash cow attributes of leading compound fertilizer companies are expected to continue to strengthen, and the companies are likely to enhance their dividend potential

According to the Zhitong Finance APP, Dongfang Securities has released a research report stating that structural changes are also occurring within the compound fertilizer industry, with leading companies' competitive advantages continuously strengthening. They are typical targets with cash cow attributes, and as capital expenditures for integrated industrial chain improvements come to an end, companies are expected to enhance their dividend potential. The related targets are YONFER (000902.SZ, Buy), STANLEY (002588.SZ, Not Rated), and Wintrue Holding (002539.SZ, Not Rated), with the combined sales of the three in 2024 accounting for approximately 20% of the national total sales. Based on the bank's analytical logic, the competitive advantages of leading enterprises are expected to continue to strengthen and form a positive cycle, potentially becoming stable targets similar to public utilities, with significant dividend enhancement potential.

The main points of Dongfang Securities are as follows:

The long-term dividend potential of leading compound fertilizer companies is underestimated

The cash cow attributes of leading compound fertilizer companies and their future dividend enhancement potential are underestimated. The market often gets caught up in the long-term appearance of the compound fertilizer industry itself being asset-light, with low manufacturing barriers, low concentration, low operating rates, and homogeneous competition, worrying about the stability of profitability, and rarely examines the comparative advantages of leading companies in the industry from the perspective of corporate competitiveness, making dividend potential even harder to become the core logic of the sector. However, in fact, the total payable scale of leading compound fertilizer companies represented by listed companies in recent years is significantly greater than the receivables, and the cumulative net operating cash flow over the years is also significantly greater than net profit, demonstrating strong bargaining power upstream and downstream. The bank believes that structural changes are also occurring within the industry, with leading companies' competitive advantages continuously strengthening, making them typical targets with cash cow attributes. In the future, as capital expenditures for integrated industrial chain improvements come to an end, companies are expected to enhance their dividend potential.

The enhancement of dividend potential stems from steady profit growth expectations, backed by the strengthening of leading competitiveness

In terms of sales, the brand stickiness of leading companies supports sales growth. As production materials, brand stickiness is relatively abstract for agricultural input products, and the bank does not intend to establish a consumer goods perception for it. The bank believes that the brand stickiness of leading companies comes from their ability to reduce uncertainty for channels and farmers, fundamentally achieving interest binding and mutual benefit. Against the backdrop of fluctuations in upstream raw material and terminal grain prices, they can enable channels and farmers to make money. This relies on the company's financial strength, cost control, and comprehensive support capabilities. Compared to small and medium-sized enterprises, leading companies have prominent comparative advantages in this regard, which has also led to the continuous improvement of the industry's CR3 in recent years. In terms of ton profit, the continuous improvement of integrated layout enhances product profitability. In recent years, catalyzed by severe fluctuations in upstream bulk raw materials, companies have increased their investment in upstream integration, gradually enhancing their layout from compound fertilizers to single fertilizers to mineral resources; on the other hand, companies are also strengthening the differentiation of terminal products and enhancing agricultural service capabilities to increase product premium space. The continuous improvement of integration in leading companies will further enhance their sustainable profitability and create positive feedback on the brand stickiness of leading companies.

After the phase of large capital expenditures concludes, dividend potential is expected to increase

Leading compound fertilizer companies have healthy operating cash flows and ample cash on hand. However, in recent years, they have been making large capital expenditures focused on upstream support, and although the level of dividends has risen, it remains relatively sluggish overall In recent years, as the investment in hand projects comes to an end and the industrial chain support becomes increasingly complete, the bank believes that under the background of anti-involution, companies' future investments will also be relatively restrained, with the potential for further increasing dividends.

Risk Warning

Risks of fluctuations in product and raw material prices; risks of project advancement not meeting expectations; uncertainties in the estimation of dividend potential