Key points of investment:
The company released its report for the third quarter of 2022: during the reporting period, the company achieved revenue of 3.803 billion yuan (YoY +47%), net profit of 431 million yuan (YoY +38%), and net profit of 482 million yuan (YoY +63%) after deducting net profit of non-return mother. Among them, Q3 achieved revenue of 992 million yuan (YoY +59%, QoQ -38%), net profit of 101 million yuan (YoY +23%, QoQ -46%) after deducting net profit of 162 million yuan (YoY +102%, QoQ -11%). The performance was in line with expectations. The appreciation of the US dollar in the Q3 quarter brought exchange income, and the company's financial expenses fell sharply to -62 million yuan. However, the exchange rate fluctuations caused the loss of fair value change income and estimated investment income to total 64 million yuan. Therefore, exchange rate fluctuations had little impact on the company's performance.
The decline in high prices of main products is stabilizing, and short-term performance may be affected by the discontinuation of production in the Shandong plant. According to the price data of Zhongnong Lihua, the average market price of the company's main products in Q3 in 2022 was 159,200 yuan/ton of imidacloprid (YoY +5%, QoQ +2%), acetamidine 158,800 yuan/ton (YoY +22%, QoQ -3%), pyrazole bacteria 254,300 yuan/ton (YoY +64%, QoQ +3%). On August 14, an explosion occurred in the Shandong Hailier reactor, a subsidiary of the company, and production was completely stopped in the factory area.
Thanks to product inventory in the Q3 quarter, the discontinuation of production did not have a significant impact on the company's performance. Shandong Hailier is the company's main original drug production base. Up to now, the factory area has not resumed production. If the subsequent resumption of production remains uncertain, combined with inventory consumption, it is expected to have a great impact on the company's Q4 performance.
Continued addition of prothioconazole strengthens its leading edge, and the construction of the Hengning base is progressing in an orderly manner to open up space for growth. Currently, the company has prothioconazole with a production capacity of 2,000 tons. The project to add 3,000 tons of production capacity at the Shandong base was not affected by the accident. Currently, it is in the equipment installation and commissioning stage, and trial production is expected to begin by the end of the year. The company plans 8,000 tons of prothioconazole in the second phase of Hengning, Qingdao, and the total production capacity of the product will reach 13,000 tons in the future. At the same time, in June of this year, the company announced that it intends to purchase 26% of Shaanxi Jinxinyi's shares. One of the target main products, α-acetyl-gamma-butyrolactone, is one of the important intermediates of prothiobacazole. As the only enterprise that currently produces this product on a large scale in China, the company will establish its leading position in prothiobazole in China with its first-mover advantage and cost advantage. The first phase of the company's Qingdao Hengning project, such as 3,000 tons of phenyl ether meconazole, 2000 tons of butyl etherurea, and 2000 tons of bromclopropyl, etc., is expected to continue to be released in the future. At the same time, the Hengning Phase II project is progressing in an orderly manner, planning several key intermediates for several products in the early stages, and the extension of the industrial chain will effectively reduce the production cost of the company's original drugs. The orderly progress of the Hengning project will open up space for the company to continue to grow.
Investment analysis: The company's performance in the second half of 2022 was affected by discontinuation of production. The company's net profit forecast for 2022 was lowered to 564 million yuan (original value was 611 million yuan), maintaining the 2023-2024 net profit forecast of 736 million and 884 million yuan. The corresponding PE was 15X, 12X, and 10X respectively. The orderly progress of the construction of the Hengning base will strongly support the company's future development, promote continuous growth in performance, and maintain the “increase in holdings” rating.
Risk warning: The progress of new projects fell short of expectations; product prices fell sharply; raw material prices fluctuated greatly.