Event: The company released its semi-annual report for 2023. In 2023, H1, the company achieved operating income of 1,305 million yuan, a year-on-year decrease of 21.6%; realized net profit of 515.536 million yuan, a year-on-year decrease of 73.9%; realized net profit of 47.589 million yuan after deduction, a year-on-year decrease of 77.5%. In the 2023 Q2 quarter, we achieved revenue of 757 million yuan in a single quarter, a year-on-year decrease of 31.4%, and a year-on-year increase of 38.2%; realized net profit of 7.1293 million yuan, a year-on-year decrease of 94.2%, and a year-on-year decrease of 84.0%.

Affected by the slump in the pesticide market, the volume and price of the company's main pesticide products dropped sharply, and 23H1's performance was under pressure. China's pesticide industry has gradually recovered since the boom in 20-22. 23H1 pesticide industry terminal demand is sluggish. Combined with large-scale homogenization in the domestic agrochemical industry, market competition has intensified. As a result, pesticide channel inventory digestion has been slow, product prices have continued to fall, and profit margins have been squeezed. Affected by the slump in the pesticide market, the sales price and sales volume of 23H1's main pesticide products, especially enoxolone, all declined year on year, and performance declined year on year. 23H1 Company's sales volumes of enoxolone series, imicao tobacco series, isoxaxone series, and enylmorpholine series products were 2,248.10, 827.18, 828.63, 1,333.14, and 754.93 tons, respectively. The year-on-year changes were -36.1%, +19.1%, +43.1%, +13.9%, and -49.2%; the average sales prices were 11.71, 22.1, 25.46, 9.95, 796,000 yuan/ton, respectively. , 7.4%, 6.8%.

The new base project is progressing smoothly, improving the regional production layout of products. 23H1's Liaoning Xianda base phase III project with an annual output of 1,500 tons of raw drugs and 3,500 tons of pesticide intermediates successfully reached production and contributed profits. The fifth phase of the project with an annual output of 1,000 tons of imidazole niacin and 3,000 tons of pesticide intermediates passed the inspection and entered the trial production phase in June '23. The company's two major production bases in Weifang and Huludao have production capacity at the same time. Furthermore, in April '23, the company announced that it would build a project with an annual output of 5,000 tons of enoxolone. The construction period is 12 months, with an estimated total investment of 65.6 million yuan. At the same time, new products such as 23H1 phenylproterone, oxazinoxorone, and methoxymethoxazole tobacco have all completed small trial process development and pilot scale-up tests, and some products have entered the industrial transformation stage; registration of the innovative compounds pyrazoquinoxalate and phenylproterone is progressing steadily; tests, screening, and registration of new compounds is planned.

The registration of proprietary overseas products is gradually being implemented, and the internationalization process is accelerating. The company's registrations for special new products such as flupyramide, pyrixazole, and 2,4-butyric acid carried out by the company in many market regions such as the European Union, Australia, and North America have been approved one after another, and business cooperation negotiations with key customers have been initiated. The company's patented product, quinoxazole, has completed drug efficacy registration evaluations in various market regions in Southeast Asia and Africa, and registration in Pakistan is expected to be approved within the year. Market efficacy evaluations of pyrazole quinoxalate and phenylproterone have been carried out in Southeast Asia, Central America and Latin America. Feedback on efficacy is good. Official overseas registration will begin within the year, and the overseas market layout will continue to be optimized.

Profit forecasting, valuation and ratings: Affected by the slump in the pesticide market, the volume and price of pesticide products have dropped sharply, and 23H1's performance is under pressure. Since the current price of pesticide raw materials is still low, we lowered our profit forecast for 23-24 and added our profit forecast for 25 years. We expect net profit for 23-25 to be 1.24 (78.5% reduction) /1.75 (73.6% reduction) /235 million yuan, respectively. We are optimistic about the production capacity development situation at the company's two major production bases in Weifang and Huludao and the registration and implementation process of the company's own overseas patented products. Development can be expected, and the “buy” rating is maintained.

Risk warning: Product and raw material prices fluctuate, capacity building falls short of expectations, and downstream demand falls short of expectations.