The company released its three-quarter report for 2021, with revenue of 953 million yuan, an increase of 10.03% over the same period last year, and a net profit of 188 million yuan, down 4.52% from the same period last year, slightly lower than expected. Maintain the buy rating.

Support the main points of rating

Income growth has recovered slightly, and rising prices of crude drugs are a drag on profits. In the first three quarters of 2021, the company achieved revenue of 953 million yuan, an increase of 10.03% over the same period last year, and a net profit of 188 million yuan, down 4.52% from the same period last year. Of this total, the company achieved revenue of 300 million yuan in the third quarter, an increase of 14.41% over the same period last year, an improvement over the same period of the first half of the year, and a net profit of 43 million yuan, down 5.37% from the same period last year.

Repeated epidemics and extreme weather have caused difficulties in the sale of agricultural materials. In addition, the impact of the general rise in raw material prices was highlighted in the third quarter, with the single-quarter gross profit margin falling to 42.25%, significantly lower than the 48.57% level in the first half of the year.

The continuous distribution of new production capacity will continue to consolidate the leading position of domestic plant growth regulators. The company's convertible debt project with an annual output of 22000 tons of efficient, safe and environment-friendly preparation production line and 50000 tons of water-soluble fertilizer (special fertilizer) production line has obtained the land use target in June 2021. The construction of the convertible bond project will help the company to continue to enrich the category and production capacity of plant growth regulator products, and then consolidate and enhance the company's position in the industry.

In August 2020, the company signed an "Investment Agreement" with the Management Committee of Chongqing Wansheng Economic and technological Development Zone, and the environmental impact assessment of the project with an annual production capacity of 15000 tons of crude drugs and intermediates was announced in May 2021. The Chongqing project will make up for the company's lack of upstream crude drugs.

Valuation

Under the situation of shortage of rural labor force and accelerated land transfer, plant growth regulators have great potential for growth in the future. As the leading enterprise of domestic plant growth regulator, the company will be the biggest beneficiary of industry growth dividend, and the release of new production capacity will support the company's continued growth. In view of the repeated epidemic, frequent extreme weather and the sharp rise in raw drug costs, the company lowered its EPS to 0.49 yuan and 0.63 yuan from 2021 to 2022, corresponding to PE of 18 times and 14 times respectively, and maintained the buying rating.

Main risks faced by rating

Upstream crude drug supply interruption risk, safety and environmental protection risk, project construction not up to expectations, abnormal changes in industry policy, loss of key customers, epidemic risk affecting production and operation, and so on.