Key points of investment:

The company released its 2023 annual report: During the reporting period, the company achieved revenue of 1,425 million yuan (YoY +6%), net profit of 172 million yuan (YoY -4%), and net profit of 195 million yuan (YoY +9%) after deducting non-attributable net profit of 195 million yuan (YoY +9%). The performance was in line with expectations. Among them, 23Q2 achieved revenue of 683 million yuan (YoY +6%, QoQ -8%), net profit of 79 million yuan (YoY +12%, QoQ -14%), net profit of 109 million yuan (YoY +47%, QoQ +26%) after deducting non-attributable net profit of 109 million yuan (YoY +47%, QoQ +26%). 23Q2 The company's comprehensive gross margin was 24.06%, up 3.59 pct year on year, down 2.81 pct from month to month, net margin was 11.68%, up 0.38 pct year on year, and 0.86 pct month on month.

In terms of expenses, 23Q2 benefited from the exchange rate fluctuation of the RMB exchange rate. The company's financial expenses fell sharply to -29 million yuan (Q1 was 0.3 million yuan), but the total loss of the company's investment income and fair value changes and profit and loss from changes in fair value caused the company to lose about 34 million yuan in investment income and fair value changes. In addition, 23Q2 calculated a reduction in inventory prices to cause asset impairment losses of $09 billion.

The company focuses on small but beautiful segments of the pesticide market, fully demonstrating its performance resilience as pesticide prices continue to decline. Since its establishment, the company has been deeply involved in the small but beautiful pesticide market segment, focusing on green, new, efficient, and low-toxic pesticides, analyzing the global market and industrial policies, combining its own research and development results, following a differentiated competitive route, and has good cooperative relationships with multinational customers. Under the rapid decline in traditional product prices, the company's product prices fluctuated relatively little. At the same time, long-term cooperative orders with multinational companies also effectively smoothed out the fluctuations in overall product prices to a certain extent, and the company's performance resilience was fully reflected. According to the company's interim report, 2023H1 achieved revenue of 984 million yuan (YoY +27%), gross profit margin of 26.28%, up 2.02 pct from the previous year; pesticide formulations achieved revenue of 96 million yuan (YoY -14%), gross profit margin of 23.38%, a year-on-year decline of 5.51 pct; pesticide intermediates achieved revenue of 229 million yuan (YoY -15%), gross profit margin of 29.17%, up 0.83 pct; trade revenue of 108 million yuan (YoY -39%), gross profit margin ratio of 13.64%, A year-on-year increase of 1.63 pct. By region, the company's domestic sales were 308 million yuan (YoY -16%), with a gross profit margin of 5.40%, a year-on-year decrease of 16.46 pct; overseas sales of 1,117 billion yuan (YoY +14%), with a gross profit margin of 31.06%, an increase of 6.53 pct over the previous year. Project construction is progressing in an orderly manner to inject growth momentum, and the pace of innovation continues to create growth potential. Since construction of the company's Huaibei base began in 2021, the first batch of production plants for dacidourea and propyloxamine has begun normal production. Construction of production plants for the innovative pharmaceutical products, trioxazole glycyramide and oxazolidone, has begun, and projects such as isoxazoloxolone have also been planned. The production plant for thiamethoxamide and cyafloxacin at the Nanjing base was put into operation in 2022. The production plants for pyrazolethermycin and difluorosulfonamide at the Huai'an base were put into operation at the end of 2022 and the beginning of 2023, respectively. In addition, the Huai'an base is also planning chlorobenzamide and oxazolyl oxalamide projects. According to the company's interim report, the 2023H1 subsidiary Huai'an Guorui Chemical achieved revenue of 282 million yuan and net profit of 1.09 million yuan; the subsidiary Anhui Ningyitai Technology achieved revenue of 84 million yuan and net profit loss of 18.69 million yuan. As the construction of the company's three production bases progresses in an orderly manner, especially the continuous production capacity investment at the Huaibei base, it will support the company's continuous growth over the next few years.

At the same time, the company continues to innovate and has abundant pipeline reserves in the pharmaceutical sector. In addition to trimoxazole glycyrrhizamide, it has developed more than 10 products independently and is undergoing field tests.

Investment analysis: Product prices continue to decline, and it still takes time for new production capacity to climb. The company's net profit forecast for 2023-2025 was lowered to 388, 4.87, 581 million yuan (original values were 504, 638, and 782 million yuan), corresponding PE to 13, 10, and 8X respectively. According to Wind's unanimous forecast, comparable companies Yangnong Chemical and Changqing Co., Ltd. have an average PE of 14X in 2023, maintaining the “increase in holdings” rating.

Risk Warning: 1) The progress of the new project fell short of expectations; 2) Product prices fell sharply; 3) Raw material prices rose sharply; 4) Recently, the company received attention from the Shenzhen Stock Exchange due to the “Notice Concerning the 2022 Profit Distribution and Plans to Transfer Capital from the Capital Provident Fund to Share Capital”.