The company released its report for the first quarter of 2023. It achieved revenue of 742 million yuan in the first quarter, an increase of 6.48% over the previous year, and Guimu's net profit of 93 million yuan, a decrease of 14.55% over the previous year, after deducting net profit of 86 million yuan from non-Gumo, a year-on-year decrease of 18.39%. The gross profit margin of sales was 26.87%, down 0.02 pct from the previous year, and the net profit margin was 12.54%, down 3.18 pct from the previous year.

The economy is declining, and short-term net profit is under pressure. Affected by the relationship between supply and demand, the pesticide industry boom declined, and the company's product prices all declined in the first quarter. In terms of herbicides, according to Wind data, the average prices of 2023Q1 chlorofluoroacetic acid, cyanofloxacin, and paracetylene were 15.78, 16.41, and 2342 million yuan/ton, respectively, down 7.37%, 10.11%, and 4.12%, respectively, and 23.01%, 26.32%, and 11.51%, respectively; in terms of insecticides, the average prices of 2023Q1 thiamethoxamide and lichimide were 11.91 and 212,800 yuan/ton, respectively, down 6.91% and 8.99% from the previous year, down 10.93% from the previous year , 25.69%. We think the first quarter was mainly a slight increase in revenue brought about by volume and price correction after the company's production capacity was released. The company binds overseas agrochemical giants to sell, and demand is stable. At the same time, the company's registration certificate resources at home and abroad are rich, which helps the company adjust its product structure in a timely manner and adapt to market changes.

Innovative pharmaceuticals are expected to be put into production, and they will actively expand downstream. The company's new construction projects are progressing steadily. Pentafluorosulfonamide at the Nanjing base, and difluorosulfonamide, oxazolamide, and chloramides at the Huai'an base are expected to be put into operation within 2023. The Ning Yitai project at the Huaibei base has been tested in 2 workshops, and some products have already been sold abroad. Among them, benzoxazolidone and the creative drug paroxazole glycyrrhizamide are expected to be put into production within 2023. Furthermore, in 2022, the company wholly acquired Soko Agrochemical, expanding into the downstream formulation sector. In the future, the company will make full use of its technical advantages in organic synthesis to further expand into the fields of fine chemicals such as pharmaceuticals and specialty chemicals.

First coverage, giving a “buy” rating. The company is a leader in the pesticide segment. A number of new products and creative pharmaceutical production capacity will be launched in the future, and growth can be expected. The company is expected to achieve operating income of 32.16, 3807, and 4,515 billion yuan in 2023-2025, and net profit of 4,48,535 million yuan, and 649 million yuan. The corresponding PE is 12X/10X/9X, giving it a “buy” rating.

Risk warning: product price fluctuations, production capacity release and construction falling short of expectations