Performance review
3Q23 performance is in line with market expectations
The company announced results for the first three quarters of 2023: revenue of 12.291 billion yuan, -32.2% year-on-year; net profit of 176 million yuan, corresponding to profit per share of 0.15 yuan, -93.9% year-on-year, in line with market expectations. Among them, 3Q23 revenue was 3.815 billion yuan, -20.3% year-on-year, and net profit of the mother was 62 million yuan, -88.3% year-on-year, +740.6%.
In 3Q23, the company's performance improved month-on-month, mainly due to the month-on-month recovery in glyphosate prices, and the company's silicone terminal product sales continued to grow rapidly.
Development trends
Glyphosate stocks are still relatively high. The average price of glyphosate in 3Q23 was 32,700 yuan/ton, -46% year-on-year and +18% month-on-month, with a slight increase from month to month. We believe that the recovery in glyphosate prices since 3Q23 is mainly due to the industry's joint load control, and the inventory situation of manufacturers has improved; in addition, there has been a recovery in South American procurement on the demand side since June. Although the current supply side of glyphosate is relatively orderly, we believe that stocks are too high (as of October 29, glyphosate manufacturers still have stocks of about 64,000 tons, +77% over the same period last year, according to Baichuan), or they may still be suppressing the short-term price of glyphosate.
There is still pressure on the silicone supply side. In 3Q23, the average price of silicone was 13,700 yuan/ton, down 31% year on year and 7% month on month. According to our statistics, production capacity will expand by about 30% year on year in 2022, and it may take a long time to absorb excess production capacity. Based on this, we expect silicone prices may remain relatively low, and the profitability of manufacturers may continue to be under pressure.
The scale of capital expenditure continues to rise, and new businesses may gradually begin to be realized. The capital expenditure scale of 1-3Q23 is 799 million yuan, a new high since listing. Looking ahead, we believe that with the progress of some of the company's key projects, such as Kaihua special silicone and functional silane, Fujian phosphorus-based flame retardants, Yanjin industrial silicon, Yumen selective herbicides, and graphite anode materials for high-end lithium batteries, etc., the company's growth in 2024 is expected to gradually materialize.
Profit forecasting and valuation
Considering that the glyphosate/silicone boom is under pressure, we lowered our 2023/2024 net profit by 59.6%/26.5% to 414 million yuan/1,086 million yuan. The current stock price corresponds to a price-earnings ratio of 27.1 times /10.3 times in 2023/2024. Maintaining an outperforming industry rating, considering the profit forecast adjustments and the company's valuation close to 1.0x P/B, we lowered our target price of 14.3% to 12.00 yuan, corresponding to 33.2 times the 2023 price-earnings ratio and 12.7 times the 2024 price-earnings ratio, which has 22.8% upside compared to the current stock price.
risks
The price of glyphosate fell sharply, and the investment in additional production capacity fell short of expectations.