Key points of investment

Incident: Zhongqi Co., Ltd. released its 2022 annual report. In 2022, the company achieved operating income of 2,970 million yuan, an increase of 35.42% over the previous year; achieved net profit of 420 million yuan to shareholders of listed companies, an increase of 96.63% over the previous year; and achieved basic earnings of 1.35 yuan per share, an increase of 95.65% over the previous year, and net operating cash flow of 1.66 yuan per share.

The 2022Q4 company achieved operating income of 805 million yuan in a single quarter, up 17.53% year on year, down 2.16% from month on month; it achieved net profit of 121 million yuan, up 38.25% year on year and 0.34% month on month.

This equates to a quarterly EPS of 0.39 yuan.

At the same time, the company announced the 2022 profit distribution plan and the Provident Fund's share capital transfer plan. It plans to distribute a cash dividend of 3.3 yuan (tax included) for every 10 shares to all shareholders. No bonus shares will be sent, and the capital provident fund will be used to transfer 5 shares to all shareholders for every 10 shares.

First coverage, giving an investment rating of “increased holdings”. In 2022, the global agrochemical boom rose, and the price of the company's pesticide products rose. At the same time, the company's capacity utilization rate increased, product production and sales increased, and the company's performance increased dramatically in 2022 due to a sharp rise in volume and price. The company is mainly engaged in the production and development of new green pesticide products, focusing on small varieties of high-efficiency pesticides. The company's market share of major products ranks among the highest in the industry. The company is technologically advanced and independently develops various synthesis technologies, such as fluoridation, asymmetric synthesis and chiral technology, phase transfer catalysis, ammonification and other key technologies. Furthermore, the company attaches importance to independent research and development of pesticide products, and has the ability to industrialize from synthesis of new compounds to small tests, pilot tests and industrial production. The company synthesized more than 520 new target compounds in 2022 and completed the pilot certification for the F001 project. In terms of new projects, the company and its subsidiaries have a total of five projects undergoing trial production. The rest of the projects are progressing in an orderly manner. The trial production project is expected to contribute to operating income in 2023. In terms of downstream customers, the company has established stable cooperative relationships with multinational pesticide giants such as Kodiwa, Bayer, Syngenta, and BASF. At the same time, as cooperation continues to deepen, the company is expected to receive more overseas orders. For the first time, we gave the company an EPS forecast of 1.59 yuan, 1.88 yuan, and 2.30 yuan respectively for 2023-2025, giving an investment rating of “increase in holdings”.

Risk warning: the risk of low downstream demand, the risk that production capacity under construction falls short of expectations, and the risk of raw material prices falling short of downstream orders.