occurrences

Novartis released its 2023 interim report: the company achieved revenue of 2,547 billion yuan in the first half of the year, -2.98% year-on-year; net profit of 338 million yuan, +5.29% year-on-year. Among them, quarterly revenue for the second quarter was 1.01 billion yuan, -11.09% year-on-year; net profit for the second quarter was 119 million yuan, or -23.05% year-on-year.

Comment:

The first production of the Blueberry base was successful, and the second curve was successfully opened. Taking advantage of land resources and superior local cultivation climate advantages in Yunnan, the company actively laid out the substrate blueberry cultivation business, and completed the first year of mass production in the first half of this year, achieving export sales of over 6,000 tons of blueberries. At the same time, with superior production areas, high-quality seedlings, and breakthroughs in substrate potting technology, the company successfully filled the gap in fruit supply in the early spring plateau, the company successfully filled the gap in fruit supply in the market, thus obtaining higher market prices. In the first half of the year, the company's modern specialty fresh consumption business, which mainly focuses on blueberry products, achieved revenue of 415 million yuan, an increase of 259.08% over the previous year; net profit of 146 million yuan, an increase of 649.64% over the previous year.

Demand for pesticide formulations is weak, and the layout of the “field circle” is optimized. Prices of upstream raw materials have continued to decline since this year, the pace of pesticide dealer purchases has slowed down. The company's pesticide formulation business has been under pressure for a short period of time, and revenue for the first half of the year fell 11.88% year-on-year. The company continued to optimize the “Tiantian Circle” business layout. The number of consolidated holding dealers in the first half of the year decreased by 5 to 25 year-on-year, resulting in a year-on-year decline of 21.55% in the business revenue to 649 million yuan. As downstream inventories are gradually digested, the company's pesticide formulations are expected to return to a normal sales pace, and the drop in raw material prices is also expected to translate into an increase in profit levels.

The planting area is rapidly expanding, and channel construction is constantly being strengthened. During the reporting period, the company basically completed the construction of the fourth batch of blueberry gardens in Yunnan. Next year, the production area of blueberries will be about 20,000 mu. According to estimates of an average output of 1-1.5 tons per mu, it is expected to produce more than 20,000 tons of blueberries. At the same time, the company is actively promoting a series of tasks such as the construction of the fifth batch of gardens and the transfer of new land. Currently, nearly 30,000 mu of land have been transferred, laying a solid foundation for future sustainable development. Furthermore, the company continues to make efforts in channel construction. The distribution of channel customers has moved from core first-tier cities to other provincial capitals, making sufficient preparations for subsequent expansion of production and sales.

Profit forecast and valuation: Due to the decline in blueberry prices and pesticide sentiment exceeding expectations, we lowered the company's net profit for 2023-25 to 373/704/884 million yuan. The corresponding EPS was 0.38/0.71/0.88 yuan, respectively, and the corresponding PE valuation was 16.76/8.89/7.16 times, respectively. The company's land resource advantage will support the continuous expansion of blueberry production capacity. Future performance growth can still be expected, and the rating increase in holdings will be maintained.

Risk warning: Blueberry price fluctuations, natural disaster risk, performance forecasts and valuations falling short of expectations.