Event

Quarterly report for 2022: revenue reached 6.502 billion yuan, an increase of 70.86% over the same period last year, and a net profit of 1.225 billion yuan, an increase of 336.71% over the same period last year.

Brief comment

Supported by glyphosate and silicone, the performance of Q1 reached a new high.

Q1's performance once again hit the best single-quarter level in history. The company's main products are mainly silicone, glyphosate, although Q1 silicone, glyphosate prices are lower than the previous month. However, on the one hand, due to the global boom in agricultural products and agricultural products, and organosilicon, due to the strong support of industrial silicon, the current price level is still at a high level in history. On the other hand, it should be noted that: (1) as shown in the figure below, due to the same obvious decline in raw materials, the actual price difference between the two products has decreased to a limited extent, and even increased month-on-month. (2) in the history of glyphosate, there has been a situation in which income lags behind the price; (3) continuous production capacity and high-end products.

The performance is supported, the integration is increased, and the undervaluation is both growing.

In terms of silicon industry chain, the company starts from organosilicon intermediates and extends the industrial chain upward and downward at the same time. In recent years, vertical integration has achieved remarkable results. In terms of industrial silicon, the company has achieved full self-sufficiency of raw materials for organosilicon, which is particularly critical for the company to maintain a high profit level of organosilicon products. The expansion to the downstream deep processing field has also been accelerated. Take the 2021 annual report as an example, the company's silicon-based terminals and special silane products achieved business income of 3.204 billion yuan, an increase of 69% over the same period last year. The terminal conversion rate reached more than 40%, of which 44% were middle and high-end products.

Agrochemical: global supply is in short supply, and rising global agricultural prices boost demand, so we see glyphosate prices decline despite a decline in glyphosate prices at the end of the peak season and weaker support for raw materials. but absolute prices and profits are still much higher than in previous years. And given the global inflationary background and the agricultural product cycle, we judge that the above stronger situation is likely to last for a long time. The company's business is expected to maintain a high profit level.

In addition to glyphosate, during the reporting period, the company controlled Hefei Xingyu and cooperative Yingtai biology, realized the sharing of sales channels, and enhanced the scale and competitiveness of the company's agrochemical business; agrochemical products achieved business income of 7.64 billion yuan, an increase of 48% over the same period last year; Ningxia Xin'an completed the construction of 3000 tons of glyphosate project; the increment was also continuous.

In terms of valuation, with the company's Q1 1.225 billion yuan single-quarter performance, the annualized return net profit has been nearly 5 billion yuan, while the annualized PE valuation is only more than 4 times. Even if the marginal product price has some downside risks, it is still at a relatively low valuation level considering the robustness of the company's performance and future growth.

We forecast that the company's net profit in 2022, 2023 and 2024 will be 37.15,40.08 and 4.459 billion yuan respectively, corresponding to PE 5.5X, 5.1X and 4.6X, maintaining the "buy" rating.

Risk hint

The planned expansion of organosilicon production capacity in the industry is relatively large, which may bring economic downturn; the downstream demand is sluggish; the construction of new capacity is not as good as expected.