Core views

Prices of its main products, such as glyphosate, continued to decline and were at the bottom of history. In addition to the low season of demand for traditional pesticides in the third quarter, the company's performance declined. Q3 The company achieved operating income of 930 million yuan, a year-on-year decrease of 50.24%, a year-on-month decrease of 29.54%; net profit of 62,811,200 yuan, a year-on-year decrease of 86.80%, a decrease of 10.39%; non-net profit withheld from the mother was 57.3222 million yuan, a year-on-year decrease of 88.53%, a decrease of 25.35% over the previous year. Under the influence of the triple factor of price, demand, and inventory, it is expected that overseas demand will accelerate recovery in the fourth quarter and drive the glyphosate market to reverse upward. The company is actively promoting the construction of new projects. Various acquisitions, capital increases and expansion are progressing smoothly, which is expected to open up growth space for the company's medium- to long-term development.

occurrences

The company released the 2023 three-quarter report

The company released its 2023 three-quarter report on October 23, 2023. In the first three quarters, the company achieved a total operating income of 3.603 billion yuan, a year-on-year decrease of 49.26%; net profit of 257 million yuan, a year-on-year decrease of 84.81%; non-net profit of 254 million yuan, a year-on-year decrease of 85.36%; and basic earnings per share of 0.5864 yuan/share. Among them, Q3 achieved operating income of 930 million yuan, a year-on-year decrease of 50.24%, a decrease of 29.54%; net profit of 62,811,200 yuan, a year-on-year decrease of 86.80%, a decrease of 10.39% over the previous year; non-net profit withheld by the mother was 57.3222 million yuan, a year-on-year decrease of 88.53%, a decrease of 25.35% over the previous year.

Brief review

Q3 Performance is under pressure, and glyphosate prices are expected to pick up

The main products, herbicides, chlor-alkali, and flame retardant products, achieved sales of 46,700 tons, 14,800 tons, 383,700 tons, and 28,800 tons respectively in the first three quarters. The average sales prices were 36,000 yuan/ton (down 21.94% month-on-month), 273,000 yuan/ton (down 0.35%), 0.09,000 yuan/ton (down 1.41% month on month), and 0.87 million yuan/ton (down 0.3% month-on-month). Among them, the low price of glyphosate stabilized. According to China Linong, as of October 22, the price of the original drug of glyphosate was 30,000 yuan/ton, and the industry was not booming.

Affected by fluctuations in the prices of its main products, Q3's performance was under pressure, achieving operating income of 930 million yuan, a year-on-year decrease of 50.24%; net profit of 62.812 million yuan, a year-on-year decrease of 86.80%; and net profit withheld by the mother of 57.3222 million yuan, a year-on-year decrease of 88.53%.

As the overseas depot cycle ends one after another and enters the replenishment stage, it is expected to boost the recovery in glyphosate prices and drive the company's performance to improve.

Equity acquisitions improve efficiency, and new projects help future growth

The company plans to acquire 67% of the shares of Nantong Lianfeng Chemical Co., Ltd. (registration procedures for relevant industrial and commercial changes have been completed). After the acquisition, the company can extend the company's industrial chain, increase the scale and proportion of the company's new materials sector business, and optimize the company's industrial layout. It is in line with the company's 14th Five-Year Plan and the development direction of the “3+1” industry for pesticides, new materials, formulations and basic chemicals. According to the actual needs of the construction of the “Heating Center Phase I Project”, in order to improve the efficiency of Jiangneng's public management decisions, the company plans to acquire part of Jiangneng's shares and increase investment in it. At the same time, it plans to increase investment in the first phase of the heating center project from 802 million yuan to 866 million yuan. In addition, the company plans to invest 192 million yuan to build an intelligent technical improvement project with an annual output of 100,000 tons of formulations, which is expected to be completed in three years; it plans to invest 795 million yuan to build a new innovative green herbicide drug and formulation project. The project cycle is estimated to be 2.5 years, and government approval documents have now been obtained. The field of new materials continues to improve and increase capital, and the construction of the second and third bases is progressing steadily. The new project will open up room for growth for the company's medium- to long-term development.

Profit forecast and valuation: The company is expected to achieve net profit of 346 million yuan, 505 million yuan, and 778 million yuan respectively in 2023, 2024, and 2025. The corresponding EPS is 0.78 yuan, 1.14 yuan, and 1.75 yuan, respectively, and the corresponding PE is 23.81X, 16.30X, and 10.59X respectively. Maintain a “buy” rating.

Risk warning: 1. Safety and environmental risks. Some raw materials, semi-finished products or finished products in the company's production process are flammable, explosive, corrosive or toxic substances, and there is a risk of causing accidents and safety accidents. 2. Risk of market fluctuations for major products. There is a risk of increased competition and falling prices in some product markets. 3. Risk of industry policy changes. There are many policies and regulations in the pesticide and chemical industry, production entry conditions are gradually being improved, and the government's elimination of backward production capacity is increasing. 4. Risk of price fluctuations of main raw materials The raw materials used in the company's production are mainly coal, yellow phosphorus, salt, methanol, glycine, etc. Fluctuations in raw material prices will have an impact on the company's business performance.