The company released its third quarterly report for 2023, and its results fell short of expectations. 1~3Q2023 achieved revenue of 1.98 billion yuan (YoY-8.55%), net profit of 203 million yuan (YoY-32.22%) and net profit of 228 million yuan (YoY-26.18%). The overall gross profit margin of 1 ~ 3Q2023 decreased to 23.76% compared with the same period last year. Sales expenses, administrative expenses and financial expenses increased by 28.19%, 26.83% and 70.07% to 0.31,1.33 and-11 million yuan respectively compared with the same period last year. Among them, 23Q3 achieved revenue of 555 million yuan (YoY-32.52%,QoQ-18.68%) in single quarter, net profit of 31 million yuan (YoY-74.39%,QoQ-61.25%), 23Q3 sales gross profit of 19.25%, year-on-year decline of 5.14pct, month-on-month decline of 4.81pct, net profit of 5.67%, year-on-year decline of 8.98pct, month-on-month decline of 6.01pct The financial expenses are 5 million yuan (23Q2 benefits from exchange gains and financial expenses are-29 million yuan, but at the same time, Q2's delivered / undue forward settlement and sale of foreign exchange results in the company's investment income and fair value changes in profit and loss of about 34 million yuan). 23Q3's quarterly revenue and homing net profit decreased compared with the previous month. We judge that the main reason is that the price adjustment of the order of 23H1 and multinational companies lags behind, resulting in a sharp decline in the price of Q3 products, affecting profitability.

The price of pesticide products has continued to decline since 2023, and we believe that the order price adjustment with multinational companies has put pressure on the performance of Q3 company.

Since its establishment, the company has ploughed the small and beautiful pesticide market, focused on the new green, efficient and low-toxic pesticides, analyzed the global market and industrial policies, combined with its own R & D achievements, and took the route of differential competition. and has a good cooperative relationship with multinational customers. 23H1 in the case of rapid decline in traditional product prices, the company's product sales are relatively more stable, we think it is mainly because the long-term cooperation orders between the company and multinational companies will, to a certain extent, cause the company's product price changes to lag behind the market price. According to the raw drug data of Zhongnong Lihua, the market average prices of some products of 23Q3 Company are 1058,000 yuan / ton (YoY-40%,QoQ-22%), 225000 yuan / ton (YoY-12%,QoQ-0%), 125.0 million yuan / ton (YoY-16%,QoQ-3%) and 1.41 million yuan / ton (YoY-35%,QoQ-10%) respectively. Thiazolamine 825 million yuan / ton (YoY-36%,QoQ-6%).

In the case of continuous decline in product prices, we believe that the order of the long Association of 23Q3 Company began to adjust prices, resulting in a greater impact on the profitability of the company.

The construction of the three major production bases will be promoted in an orderly manner to inject growth momentum, and innovation will continue to create growth potential. Since the construction of the company's Huaibei base began in 2021, the first batch of production workshops for lice acarbazide and propargyl fluoxachlor have started normal production, and the production workshops for pharmaceutical products oxazolylglycyrrhizin and oxazolidone have started construction. at the same time, isoxazolone and other projects have been planned. According to the company announcement, the production workshop of thifenamine and cyflufenoxalate in Nanjing base was put into production in 2022, and the production workshop of pyrazolyl ester and difluorosulfonamide in Huaian base was put into production at the end of 2022 and the beginning of 2023 respectively. In addition, the Huaian base also plans chloramphenicol benzamide and oxazolyl chlor projects. According to the company's three quarterly report data, by 2023 Q3, the company's fixed assets were 1.59 billion yuan, an increase of 667 million yuan over the same period last year. With the orderly progress of the construction of the company's three major production bases, especially the continuous production capacity of the Huaibei base, it will support the company's sustained growth in the next few years. At the same time, the company continues to innovate, and the pipeline reserve of Chuang Pharmaceutical is rich. in addition to refined oxazolyl glycyrrhizine, more than a dozen independent products are being tested in the field.

Investment analysis opinion: product prices continue to decline, new capacity still needs time to climb, downgrade the company's 2023-2025 net profit forecast for 2.61,3.50, 458 million yuan (the original value is 3.88,4.87,581 million yuan), corresponding to PE 17,13,10X respectively, according to the Wind consensus forecast, comparable company Yangnong Chemical, Besme 2023 average PE of 21X, maintain the "overweight" rating.

Risk tips: 1) the progress of the new project is not as expected; 2) the price of products has dropped sharply; 3) the price of raw materials has risen sharply; 4) the company has recently received the attention of the Shenzhen Stock Exchange due to the announcement on the profit distribution and capital accumulation fund for the year 2022. 5) Huai an Guorui, a wholly-owned subsidiary, and Anhui Ningyitai, a holding subsidiary, recently received a written decision on administrative penalty.