1-3Q22 performance is lower than we expected.
Andamai announced 1-3Q22 results: income 28.078 billion yuan (YoY+24.9%), return to its mother net profit 768 million yuan (year-on-year turnround to profit, year-on-year increase of 772 million yuan), deduction of non-net profit 659 million yuan (year-on-year turnround to profit, year-on-year increase of 771 million yuan), 1-3Q22 company profit increase year-on-year mainly due to the global agrochemical cycle is in the upward stage, the company's products volume and price rise and other factors. Corresponding to 3Q22 operating income of 9.282 billion yuan (YoY + 25.0%), home net profit of 36 million yuan, year-on-year turnround to profit, down 88.2% month-on-month, deducting non-net profit of 4 million yuan, the performance is lower than our expectations, mainly related to the fair value brought about by exchange rate changes and the increase in financial expenses affecting the company's performance.
Trend of development
The global agrochemical industry is in a business cycle in 2022. Driven by a 19 per cent year-on-year increase in the company's 1-3Q22 sales price and a 7 per cent year-on-year increase in sales, sales rose 26 per cent at a fixed exchange rate. In yuan terms, sales are up 25% year-on-year; the company's 1-3Q22 revenue is the highest since it went public. In dollar terms, 1-3Q22 Europe / North America / Latin America / India, Middle East and Africa / Asia Pacific revenues were $8.61 million and $958 million, respectively, for YoY+4.3%/+17.2%/+41.7%/+3.1%/+41.4%. Although the global agricultural price 2Q22 has been revised back, it is still higher than the historical average. we believe that the price of agricultural products is high, farmers' willingness to use drugs is increased, which is good for the global demand for agrochemical products. The global plant protection industry is in a business cycle in 2022 and continues to be optimistic about global agrochemical demand.
Exchange rate fluctuations affect the performance of the company. The operating activities and assets / liabilities of the company are distributed all over the world, the cost side and the sales side of the company are different geographically, exchange rate changes often bring gross profit margin fluctuations, companies in the daily operation of long-term use of foreign currency derivatives hedging exchange rate volatility risk. The net profit and loss generated by hedging is recorded as fair value change profit or loss, 1-3Q22 is-1.365 billion yuan, 1-3Q22 is + 174 million yuan. The company believes that the financial expenses and fair value changes add up to more fully reflect the financial costs borne by the company to support the main business and protect monetary assets / liabilities, 1-3Q22 financial expenses and fair value changes add up to 1.497 billion yuan, 1-3Q22 is 934 million yuan. We believe that exchange rate fluctuations bring great fluctuations to the company's performance.
The price of terminal preparation is expected to remain high. We believe that the global demand for crude drugs is strong, the supply of raw drug capacity in Europe is still uncertain, and global crude drug prices and terminal preparation prices may remain high.
Profit forecast and valuation
Exchange rate changes affect the company's gross profit margin, which in turn affects the company's performance. We cut the net profit of 2022amp by 19.6% to 982 million yuan / 1.192 billion yuan in 2023. The current A-share price corresponds to 20.5 times 2023 / 16.9 times earnings. We are optimistic that the global agrochemical industry is in a business cycle and maintain an outperforming industry rating, but due to the reduction in earnings expectations, we have lowered our target price by 19.6% to 11.38 yuan, corresponding to 27.0 times 2022 price-to-earnings ratio and 22.2 times 2023 price-to-earnings ratio, which is 31.4% higher than the current stock price.
Risk.
Large exchange rate fluctuations and derivatives risks, goodwill impairment risks, crude drug prices fluctuate sharply, global agrochemical industry recovery is not as expected, safety, environmental protection risks.