CICC covered China Heart Link Chemical Fertilizer for the first time (01866): A target price of HK$10.57 for the “outperforming industry” rating

The Zhitong Finance App learned that recently, CICC released a research report covering China Heart to Heart Fertilizer (01866) for the first time, giving it a “outperforming industry” rating. The target price is HK$10.57, corresponding to 7.3 times the price-earnings ratio in 2026. CICC pointed out that as a leading domestic coal chemical enterprise, the company uses advanced coal water slurry technology to build a moat with a cost advantage of about 10% lower than the industry; with the completion of production expansion at bases in Henan, Xinjiang, and Jiangxi, urea production capacity will increase 59% to 8.05 million tons in 2027, and currently urea profit is low in the cycle and there is limited room for price decline, so capacity expansion is expected to drive the company's performance growth.

CICC mentioned that China Xinlianxin Chemical Fertilizer is the largest coal chemical integration leader with the largest urea monomer in China and the top five in the compound fertilizer industry. In 2025, the company's urea and compound fertilizer production capacity was 5.05 million tons and 4.48 million tons respectively, accounting for 5.4% and 5.2% of the total domestic production, respectively. With the completion of production expansion at bases in Henan, Xinjiang, and Jiangxi, CICC expects the company's urea production capacity to increase to 8.05 million tons in 2027, an increase of 59% over 2025; compound fertilizer production capacity will increase to 5.98 million tons, an increase of 33% over 2025.

CICC pointed out that China Xinlianxin Chemical Fertilizer uses the industry's advanced coal water slurry technology, and the average production cost of urea in 2025 is about 10% lower than the industry, which has a strong cost advantage. As new production capacity expands and technology continues to be upgraded, CICC believes that the company's scale effect will be further highlighted, and the cost advantage is expected to be consolidated and enhanced.

In terms of dividends, CICC also gave positive reviews. Since its listing, the company has continued to focus on shareholder returns. The cumulative cash dividend from 2021 to 2025 reached 1.56 billion yuan, and the dividend rate reached 44% in 2025. CICC expects that as the company's profits continue to grow and the peak of capital expenditure ends in 2027, the cash flow of Heart to Heart Fertilizer is expected to be more abundant, and shareholder returns are expected to be further guaranteed.

The market is generally concerned that domestic urea supply exceeds demand, but CICC believes that currently urea profits are low in the cycle, there is limited room for further price decline, and the company has a cost advantage in leading industries, and the expansion of production capacity is expected to drive the company's performance growth.

CICC expects the EPS of Xinlianxin Chemical Fertilizer to be 1.25 yuan and 1.41 yuan respectively in 2026 and 2027, and the CAGR will reach 39% from 2025 to 2027. The current stock price corresponds to the 2026 and 2027 price-earnings ratios of 5.8 times and 5.0 times, while the average P/E of comparable companies in 2026 is 10.2 times. Considering the Hong Kong stock liquidity discount, CICC gave Heart Link Fertilizer 7.3 times the price-earnings ratio in 2026, covering the “outperforming industry” rating for the first time. The target price was HK$10.57, corresponding to an upward margin of 26.6%.