Event: The company released its 2022 annual report and the first quarter report of 2023. In 2022, the company achieved revenue of 4,535 million yuan (+22.60% year-on-year), achieved net profit of 460 million yuan (+2.28% year-on-year), 23Q1 the company achieved revenue of 1,230 million yuan (+2.51% year-on-year), and achieved net profit of 152 million yuan (+6.69% year-on-year).

The scale of production continues to increase, and prothioconazole is gradually gaining strength: the company is mainly engaged in R&D, production and sales of pesticide formulations, pesticide intermediates, pesticide ingredients, and water-soluble fertilizers. The main original drug products include insecticide series and disinfectant series. The company operated steadily during the reporting period. According to the announcement, the company's pharmaceutical business grew steadily in 2022, and sales of major drug products increased. In addition, the company's integrated strategy for formulations, original drugs and intermediates continued to deepen. According to the announcement, in June 2022, the Qingdao Hengning Phase I project involving the insecticide butylurea, bromoconitrile, and the biocicides phenyl ether meconazole original products entered the trial production stage. On December 21, 2022, mainly involved 3,000 tons/year of proconazole production capacity Physical construction projects are also being tested During the production stage, the company's production scale and product categories continued to increase. The current boom in the pesticide industry has declined somewhat compared to the previous period. Prices of insecticides, disinfectants and other products have declined overall. According to the announcement, 23Q1 the company's pesticide product prices were -13.84% year on year, and fertilizer product prices were -39.75% year on year. In this context, the company achieved a year-on-year increase in revenue and profit. We believe that it mainly benefits from more profitable prothioconazole products that continue to gain strength as production capacity expands, providing strong support for the company's performance. In the future, as the pesticide industry recovers and construction projects are gradually implemented, the company's profitability is expected to gradually show.

Multiple projects are progressing simultaneously, and the pharmaceutical business is expected to gain strength: in recent years, the company has continued to diversify its product layout and scale expansion. According to the announcement, construction of the second phase of the Qingdao Hengning Biotechnology Co., Ltd. project began in 2022, and some of these projects will be completed in 2023. Furthermore, Shandong Hailier's green and efficient pesticide original drug and intermediate technology upgrading project is also expected to be completed in 2023. In the future, as related projects gradually advance, the company's product layout is expected to be further improved. Furthermore, the company issued an announcement to change and adjust the production capacity and planning design of the Hengning Phase II project. In terms of APIs, it is proposed to exclude products such as pyrimidine and acetamide, increase the production capacity of pyrimidine, chloramidine, prothioconazole, and cinimedione from the original project, and add original drugs such as zoloxamide, fluoroclosamide, 2,3-dichloropyridine. In the future, as the project gradually develops, the company's competitive advantage and profitability are expected to increase rapidly.

Investment advice: We expect the company's net profit from 2023-2025 to be 801 million yuan, 1.08 billion yuan, and 1.43 billion yuan respectively. We will give 13xPE in '23, with a target price of 30.5 yuan, maintaining the buy-A investment rating.

Risk warning: The implementation of projects under construction fell short of expectations; the macro environment fell short of expectations.