Events:

On October 24, 2023, Lear Chemical released the third quarterly report of 2023: in the first three quarters of 2023, the company achieved operating income of 6.01 billion yuan, year-on-year-22.4%; net profit of 560 million yuan,-62.5%; deduction of non-return net profit of 550 million yuan,-62.7%; weighted average ROE of 7.7%, year-on-year-18.9 pct. Sales gross profit margin 24.9%, year-on-year-7.6 pct; sales net profit rate 11.8%, year-on-year-9.8 pct; operating activities net cash flow 340 million yuan.

Among them, Q3 realized revenue of 1.54 billion yuan in 2023, year-on-year-42.3%, month-on-month ratio-24.2%; realized return-to-mother net profit of 80 million yuan, year-on-year-81.9%, month-on-month ratio-60.8%; realized non-return net profit of RMB 70 million, year-on-year-83.2%, month-on-month ratio-65.5%; weighted average ROE of 1.1%, year-on-year-6.3 pct. Sales gross profit margin 20.0%, year-on-year-10.4 pct, month-on-month-5.8 pct; sales net profit margin 6.5%, year-on-year-12.6 pct, month-on-month-6.6 pct; net cash flow 20 million yuan.

Main points of investment:

The price of the main product glyphosate fell more, dragging down the performance of the company, the net profit of 2023Q3 was 80 million yuan, a decrease of 370 million yuan over the same period last year, and a decrease of 130 million yuan from the previous year. Mainly due to the main product glyphosate price decline more, dragging down the company's gross profit margin, Q3 company gross profit of 310 million yuan, a year-on-year decrease of 500 million yuan, a month-on-month decrease of 210 million yuan.

In terms of expenses, Q3 management / R & D / financial expenses were-0.3 billion yuan per month and-0.2 billion yuan respectively compared with the same period last year, respectively. The increase in financial expenses was mainly due to a reduction in exchange rate benefits brought about by exchange rate fluctuations. Since 2023, the competition in the glyphosate industry has intensified, the supply side has expanded more, the downstream demand is light, and the price of glyphosate has dropped to an all-time low. The average price of 2023Q3 glyphosate industry is 610,000 yuan / ton,-73% compared with the same period last year, and-20% compared with the previous year.

As of October 27, 2023, the price of glyphosate was 600, 000 yuan per ton, which has been maintained since September 19, with domestic factory inventory of 4100 tons on October 27.

According to Baichuan information, the price of diethyl phosphite, the core intermediate upstream of glyphosate, has reached the cost line, and glyphosate has almost no room to fall, but the supply side is sufficient, the market is still in the competitive stage, and it is expected that it is difficult for the price to rebound in the short term.

New projects are rich, and ammonium glyphosate is expected to bring new growth.

As of 2023Q3, the company is under construction of 3.682 billion yuan, + 103% of the same period last year. The company is rich in construction projects, and the advantage of integration is expected to be further enhanced. According to the company's mid-2023 report, the progress of Guang Anlihua Pesticide Intermediate Project is 91%, Jingzhou Sancaitang Chemical Intermediate Phase I Project is 88%, Hunan Tianjin Base Biological fermentation Project is 39%, Guanganlier 11000 ton Pesticide Project is 49%, Guanganlier Chemical Intermediate Project is 54%, Hunan Bide New area Project is 27%. In addition, the company has sufficient technical reserves and actively promotes the pilot project of chlorobenzamide and biochemical L-glyphosate.

The company is ahead of the industry in planning production capacity and technology of ammonium glyphosate, which is expected to bring new growth. Guang'an base now has a production capacity of 3000 tons / year of refined glyphosate. According to the company's report, the 20,000 ton / year enzymatic refined ammonium glyphosate project in Jinzhou, Hunan Province has started trial production, and Jingzhou 10,000 tons / year biochemical method has been approved for construction in February this year. It is now under way.

The profit forecast and investment rating are based on the current pesticide cycle position, especially the price judgment of glyphosate. We adjust the company's profit forecast. It is estimated that the company's 2023, 2024, 2025 net profit will be 6.61,8.66 and 1.163 billion yuan respectively, corresponding to EPS 0.83,1.08,1.45 yuan per share, and corresponding to PE 14,11,8 times. The company is a domestic glyphosate leader with outstanding technical and cost advantages. Optimistic about the company's future growth space for glyphosate, maintain the "buy" rating.

The risk indicates that the competition pattern of the glyphosate industry aggravates the risk, the price of the main products falls down, the production of new projects falls short of the expected risk, the price of raw materials rises sharply, the promotion of glyphosate is not as expected, and the risk of environmental protection.