Report summary:

The country's leading pesticide formulation has entered a new circuit in the blue ocean of substrates for blueberries. Pesticide formulations have been the company's foundational business since its inception, and it has maintained a leading position in the industry for many years. On this basis, the company actively built a second growth curve and successfully entered the field of fresh consumption with modern characteristics, adapted to changes in fruit consumption trends, vigorously promoted the business development of the Yunnan-based blueberry industry chain, and seized the blue ocean market of the blueberry industry. The first production of the company's blueberry base in the 2023 season was successful, achieving export sales of about 6,600 tons and contributing about 130 million dollars in profit, greatly relieving the short-term performance pressure of the company's pesticide formulation business affected by the industry cycle, and helping the company's overall profitability continue to improve.

Blueberry production is increasing at an accelerated pace, and profit per ton can be expected to increase. The company has sufficient high-quality land resources in Yunnan and is vigorously promoting the expansion of the blueberry base. The production area is expected to increase to 20,000 mu and more than 30,000 mu, respectively, and the corresponding production and sales volume will exceed 20,000 tons and 40,000 tons, respectively. At the same time, relying on the advantages of Yunnan's special climate, not only are blueberries of excellent quality, but the mature market period is even more advanced. From November to February of the following year, domestic blueberries are basically supplied from Yunnan, which dominates the market supply gap period, thus enjoying high price dividends. The company continues to push forward the production season through seed optimization and early technology application. The share of blueberries produced early next year is expected to rise to nearly 50%, further increasing industry profits. Furthermore, with the natural increase in mu production starting in the second season, amortization costs will decrease, and the equipment and manpower vacancy rate will also decrease, so the cost of blueberries is expected to drop by nearly 10%. Also, due to the influence of El Niño, production of South American blueberries in the new season has been cut, and a sharp reduction in imports is expected to boost domestic blueberry prices next year.

Demand for pesticide formulations is picking up, and the long-term pattern is continuously being optimized. Since this year, the industry as a whole has been in the inventory removal stage. At the same time, due to the continued weakening of prices, channel vendors are not very motivated to pick up goods, which has exacerbated poor channel delivery. Looking at the second half of this year, prices of pesticide raw materials have stabilized, while foreign trade orders have rebounded, and pesticide exports have continued to rise year on year, reflecting an improvement in the overall supply and demand pattern of the industry. As distribution inventories are further removed, industry prosperity is expected to rise further, and the profit pressure on the company's pesticide formulation business can be expected to ease. In the long run, under the impetus of industry policies, the competitive pattern of the pesticide formulation industry is expected to continue to be optimized, and backward production capacity will continue to be cleared, and the company's market share, as the industry leader, is expected to continue to increase.

Valuation and ratings: As the company's blueberry base is put into operation one after another, the blueberry cultivation area will expand rapidly and yield will increase further in the next year, and the company's blueberry production will increase rapidly, thus driving the company's blueberry business revenue to grow rapidly, while pesticide formulation revenue may stop falling as the industry booms. We expect the company to achieve revenue of 4232/55.09/6.308 billion yuan in 2023-25. Since the company's blueberries are expected to be listed early and the price of the new season's blueberries may exceed previous expectations, we raised the company's profit forecast for 2023-25 to 3.77/7.16/877 billion yuan, corresponding to EPS of 0.38/0.72/0.88 yuan, corresponding to the current PE valuation of 21.38/11.25/9.18 times, respectively, and raised to the buying rating.

Risk warning: blueberry price fluctuations, natural disaster risk, performance forecasts and valuations falling short of expectations