The company released its 2023 three-quarter report. The first three quarters of 2023 achieved operating income of 5.018 billion yuan, a year-on-year decrease of 14.97%; net profit of net income of 75 million yuan, a year-on-year decrease of 122.00%. Among them, the third quarter achieved operating income of 1,353 billion yuan, a year-on-year decrease of 38.48%, a year-on-year decrease of 20.79%; net profit of 100 million yuan was realized, a year-on-year decrease of 172.38%, a year-on-year decrease of 399.81%. I am optimistic that the company's R&D efforts will continue to increase, new projects are progressing steadily, and the plant protection business is expected to resume and maintain the buying rating.

Key points to support ratings

The plant protection industry removes inventory and waits for the industry to pick up. In 2023, the plant protection industry faced a “de-inventory” phenomenon. Weak demand was transmitted to the plant protection CDMO industry where the company was located, putting pressure on the company's performance. The company's gross margin for the first three quarters of 2023 was 21.86%, down 4.78 pct year on year; net profit margin was -1.00%, down 7.45 pct year on year. As a pioneer and leader in the domestic plant protection CDMO industry, the company actively collaborates with customers to reduce the negative impact of insufficient industry prosperity, and also relies on its own innovative strength to continuously promote business cooperation. As the pace of inventory removal in the plant protection industry accelerates, downstream demand recovers, and the company's production process improves in the future, the company's performance is expected to recover.

The company's expense ratio increased slightly during the period, and the R&D expense ratio increased. The company's period expense ratio for the first three quarters of 2023 was 18.67%, up 2.30 pct year on year; among them, the sales expense rate was 0.50%, up 0.24 pct year on year, mainly due to the company's adjustment of some management personnel to the sales department; the management expense rate was 10.84%, up 0.79 pct year on year; the financial expenses rate was 0.85%, down 0.58 pct year on year, mainly due to fluctuations in the US dollar exchange rate and exchange earnings; R&D expenses were 6.48%, up 1.84 pct year on year. The company's cost rate control during the period was relatively good, and the R&D expense rate increased. As the company continues to increase R&D investment to build core competitiveness, it is expected to have a positive impact on the company's profitability.

New projects are progressing steadily, and all-round collaborative development strengthens future growth. According to the company's 2023 semi-annual report, in the plant protection business section, the company is actively promoting cooperation with major global companies on new products in front-end pipelines, while thoroughly studying the application of biotechnology and continuing to promote CDMO business cooperation with major strategic customers around the world based on technological innovation. In the pharmaceutical business sector, the company completed 5 verification projects in the first half of the year, and the pharmaceutical CRO business officially started. At the same time, the company promoted the implementation of many new projects through a number of new technologies involving continuous reactions, enzyme technology, and peptide synthesis. In the functional chemicals business segment, the company focuses on the construction and trial production of commercial production facilities for 20,000 tons of lithium hexafluorophosphate and 10,000 tons of lithium bifluorosulfonimide. In the future, as the company's R&D efforts continue to increase and new projects are steadily promoted to achieve volume, the company's growth is expected to continue to show.

valuations

Due to the impact of inventory removal and weak demand side in the plant protection industry, profit forecasts have been adjusted. The 2023-2025 EPS is expected to be 0.03 yuan, 0.36 yuan, and 0.74 yuan, respectively, and the corresponding PE is 222.2 times, 21.8 times, and 10.5 times, respectively. The company's plant protection business is expected to recover, and the pharmaceutical and new energy businesses will grow steadily and maintain purchasing ratings.

The main risks faced by ratings

Production capacity construction fell short of expectations, pharmaceutical project verification risks, and raw material prices fluctuated greatly.