The company released its 2023 mid-year report: During the reporting period, the company achieved revenue of 2,663 million yuan (YoY -5%), net profit of 331 million yuan (YoY +0%), and achieved non-attributable net profit of 378 million yuan (YoY +18%). The performance was in line with expectations. 23H1's gross sales margin was 31.55%, up 4.34 pct from the previous year, and the net profit margin was 12.42%, up 0.71 pct from the previous year. Among them, 23Q2 achieved revenue of 1,433 million yuan (YoY -11%, QoQ +17%) in a single quarter, net profit of 179 million yuan (YoY -4%, Qo +17%), net profit of 229 million yuan (YoY +26%, QoQ +53%) in a single quarter, slightly exceeding expectations. The company's gross sales margin for the 23Q2 quarter was 29.96%, with year-on-month changes of -4.39 pct and -3.43 pct respectively, net profit margin of 12.46%, and +0.87 pct and +0.09 pct, respectively, from the same quarter.
Benefiting from exchange rate fluctuations, 23Q2's financial expenses fell to -53 million yuan, but at the same time, fair value change income and investment benefits totaled 52 million yuan.
The increase in production and sales volume offset some of the impact of falling prices. Continued increases in prothioconazole led to performance growth, and the 23Q2 single quarter performance was impressive. The price of 23H1 pesticides fell sharply, and the increase in sales volume was not enough to make up for the impact of the price drop, which led to a decline in the company's revenue.
During the reporting period, the company's pesticide business achieved revenue of 2,605 million yuan (YoY -6%), sales volume of 32,800 tons (YoY +17%), and an average sales price (excluding tax) of 79,400 yuan/ton (YoY -20%). At the same time, the prices of the main raw materials liquid chlorine, methylamine, DMF, acrylonitrile, and toluene changed -88%, -63%, -62%, -20%, -8%, respectively. The cost side improvements brought some support to the company's profit. Looking at 23Q2 in a single quarter, the company's pesticide business achieved revenue of 1,398 million yuan (QoQ +16%), sales volume of 18,500 tons (QoQ +30%), and an average sales price (excluding tax) of 75,500 yuan/ton (QoQ -11%). Since this year, with the orderly resumption of production of prothioconazole, pyrazolid, imidacloprid, and imidacloprid at the Shandong base, and the release of 3,000 tons of prothioconazole production capacity, Hengning Phase I butyl ether urea, metaconazole, and bromobuconazole have continued to increase quarterly. At the same time, the company mainly cooperates with cross-companies, and profits are still at a good level. The increase in sales share has boosted the overall gross profit margin and stabilized the company's performance.
Continued increase of prothioconazole strengthens its leading edge, and the construction of the Hengning base is progressing in an orderly manner to open up room for growth. Currently, the company has a design production capacity of 5,000 tons of prothioconazole (Shandong Hailier's 3,000-ton project entered trial production in December 2022), and Qingdao Hengning Phase II plans 10,000 tons of prothioconazole (8000 tons before the change). The total product production capacity will reach 15,000 tons in the future. With first-mover advantages and cost advantages, the company will maintain its leading position in the country. In order to better ensure the continuous development of the company's original drugs and intermediates, on April 28, 2023, the company announced the changes in the Hengning Phase II project. It is proposed to eliminate raw materials such as pyrimidine and pyrimidinamide and intermediates such as α-acetyl-gamma-butyrolactone, increase the production capacity of raw materials and some intermediates such as pyramidone, chlorobenzamide, prothioconazole, and oximidine from the original project, and add production capacity of raw drugs and intermediates such as azoxamide, fluorochlorobenzamide, and 2,3-dichloropyridine. During the reporting period, Qingdao Hengning, a wholly-owned subsidiary, achieved revenue of 53.66 million yuan and net profit loss of 42.27 million yuan. In the future, with the gradual development of the Hengning project, it will open up space for the company to continue to grow, and its competitive advantage and profit will be rapidly enhanced.
Investment analysis: For the time being, the company's net profit forecast for 2023-2025 was 736, 8.84 million yuan, and 1,118 million yuan. The PE corresponding to the current market value is 8, 7, and 5X respectively, maintaining the “increase in holdings” rating.
Risk warning: 1) The progress of the new project fell short of expectations; 2) the price of the product fell sharply; 3) the price of raw materials fluctuated greatly.