静待英国、江苏植保基地扭亏。从子公司情况看，公司英国子公司 LianhetechHoldco Limited 1H23 实现营业收入3.81 亿元（YoY+54.9%），净利润亏损1.65 亿元，亏损同比增加3601 万元。子公司江苏联化1H23 实现营业收入7.0 亿元（YoY-25.0%），净利润亏损5116 万元，同比转亏。公司是中国植保CDMO 领域的先行者及领先者，践行大客户战略，与国际头部植保企业深度合作，海外基地的布局进一步提高了客户供应链的稳定性。我们认为，全球植保行业有望在4Q23-1H24 转暖，公司英国、江苏基地或逐渐减亏。1H23 performance falls short of market expectations
The company announced 1H23 annual results: operating income of 3.665 billion yuan (YoY -1.0%, HoH -11.9%), net income of 24.588 million yuan (YoY -88.0%, HoH -95.0%), net profit of non-attributable income of 130 million yuan (YoY -38.6%, HoH -56%). The company's 1H23 gross margin was 22.0% (YOY-4.4pct, HoH-4pct), and net margin was 0.7% (YOY-4.8pct, HOH-11.2pct). The company's revenue from pharmaceutical/plant protection/functional chemicals/other industrial products was 8.11/24.76/0.86/284 million yuan, YoY +5.9%/-7.6%/-26.7%/+109.3%, gross margin was 36.4%/16.9%/17.4%/25.9%, and YOY-0.03/-6.5/-9.7/-1.4ppt, respectively. In a single quarter, 2Q23, the company achieved operating income of 1,708 million yuan (YoY -15.0%, QoQ -12.7%), net profit loss of 0.2 billion yuan, net profit loss of 0.2 billion yuan, net profit of non-attributable income of 87 million yuan (YoY -44.9%, QoQ +105.5%). The company's 1H23 non-recurring profit and loss, mainly from changes in fair value of derivatives investments for the purpose of hedging, reached 131 million yuan. The company's 1H23 performance fell short of market expectations, and the plant protection industry is still in a “de-inventory” cycle. The reduction in order volume has caused both revenue and profit from the company's plant protection business to drop. As of 1H23, the company's net market ratio was 1.13, which is in the 0.06% quartile since listing. We believe that in a context of multiple unfavorable circumstances, the company's operating performance is under pressure, yet it still lays out many high-quality assets. The pharmaceutical business has maintained steady growth, and the bottom investment value is prominent.
Development trends
Wait for the British and Jiangsu plant protection bases to reverse their losses. Judging from the subsidiary situation, the company's British subsidiary LianHeTechHoldCo Limited 1H23 achieved operating income of 381 million yuan (YOY +54.9%), net profit loss of 165 million yuan, and a year-on-year increase of 3.61 million yuan in losses. The subsidiary Jiangsu Lianhua 1H23 achieved operating income of 700 million yuan (YoY -25.0%) and net profit loss of 51.16 million yuan, which was converted into loss over the previous year. The company is a pioneer and leader in the field of plant protection CDMO in China. It has implemented a major customer strategy, and has in-depth cooperation with leading international plant protection companies. The layout of overseas bases has further improved the stability of the customer supply chain. We believe that the global plant protection industry is expected to warm up in 4Q23-1H24, and that the company's UK and Jiangsu bases may gradually reduce losses.
The pharmaceutical sector maintained steady growth. The company's 1H23 pharmaceutical CDMO business pipeline continues to advance, and 5 verification projects have been completed. The company's foreign pharmaceutical customers are expanding smoothly. In the first half of the year, it has already deepened R&D cooperation with two leading foreign pharmaceutical companies. On the other hand, the company's pharmaceutical CRO business has officially started, and the CRO R&D base has been successfully completed and put into use. In the field of R&D, the company promoted the implementation of many new projects in the first half of the year through a number of new technologies involving continuous reactions, enzyme technology, and peptide synthesis.
Profit forecasting and valuation
The “de-inventory” cycle in the plant protection industry is still not over, and the company's performance has declined significantly. We lowered our 2023/2024 net profit by 54%/28% to 340/707 million yuan. The current stock price corresponds to 2023/2024 23.4 times/11.3 times the price-earnings ratio. The company's plant protection business is under pressure, but the pharmaceutical business is still developing steadily. We lowered our target price of 20% to 12.75 yuan, corresponding to 34.5 times the 2023 price-earnings ratio and 16.6 times the 2024 price-earnings ratio, maintaining outperforming industry ratings. There is 47.9% upward space compared to the current stock price.
risks
The development of pharmaceutical intermediates fell short of expectations, and prices of pesticide intermediates fell sharply.