Steady growth in performance: The company previously released its annual report for '22 and its quarterly report for '23, achieved revenue of 4.535 billion yuan in '22, +22.60%, and net profit of 460 million yuan over the same period, +2.28%; in Q1 '23, it achieved revenue of 1,230 million yuan, +2.51% over the same period, and achieved net profit of 152 million yuan over the same period of +6.69%, and maintained steady growth in performance.
The boom in the pesticide sector has declined, and the company's integrated strategy has been stable and profitable: since the beginning of ''22, pesticide prices have begun to show a clear downward trend. Currently, the industry is still in an active inventory removal cycle after the roller coaster market caused by the initial supply chain crisis. As of June 16, '23, Zhongnong Lihua's pesticide and fungicide price index fell 27.3% and 18.9% from the beginning of '23. In the downturn in the pesticide industry, the company's 23Q1 comprehensive gross margin increased to 33.39%, up 6.94 pct from the gross margin for the full year of '22. On the one hand, this is due to the integrated strategy of formulations, drugs and intermediates implemented by the company's business layout, which effectively reduces the risk of cyclical fluctuations in the pharmaceutical industry, and the overall profit level is relatively stable. On the other hand, it is also due to product structure optimization brought about by the company's new projects, continuing to lay out promising new pesticide products.
Core products continue to expand, cooperating with leading overseas companies to promote innovation: In December 2022, Shandong Hailier's 3,000 tons/year disinfectant propthiomazole entered the trial production stage. After the project is fully put into operation, the company's prothiomazole production capacity will reach 5,000 tons per year. It is expected that the Hengning Phase II project completed this year will still have a production capacity of 8,000 tons/year of prothiomazole next year, with long-term production capacity reaching 13,000 tons, continuing to increase profits in the pesticide sector. In June 2023, the company signed a strategic business cooperation agreement with Codihua to provide them with support in the fields of production, supply and business licensing of new plant protection products to enrich their product portfolio. At the same time, the two sides will also form cooperation in the development of localized applications of innovative compounds to jointly promote continuous innovation in plant protection products in technology and services to fully prepare for long-term growth.
The company's integrated strategic layout gave it stable profit growth, but considering the decline in the pesticide industry sentiment and the company's raw material and product prices fell, we predicted that the company's EPS per share in 23-25 would be 2.00, 2.68, and 3.27 yuan per share (the original 23-24 year forecast was 2.60 and 3.08 yuan), which gave the comparable company a target price of 26.0 yuan and maintained the purchasing rating.
Risk warning
New production capacity fell short of expectations; terminal market development fell short of expectations; product and raw material prices fluctuated.