Incident: The company released its 2023 annual report. In 23, the company achieved operating income of 7.851 billion yuan, a year-on-year decrease of 22.6%, and realized net profit of 604 million yuan, a year-on-year decrease of 66.7%. Among them, the company achieved revenue of 1,844 billion yuan in a single quarter, a year-on-year decrease of 23.0%, a year-on-month increase of 20.0%, and realized net profit to mother of 44 million yuan, a year-on-year decrease of 86.3% and a year-on-month decrease of 45.3%.

The company's performance in '23 was under pressure, and the price of glyphosate was at an all-time low. Affected by the sharp drop in the price of glyphosate, the company's 23-year performance was under pressure. In '23, the company achieved operating income of 47.94, 16.56, 7.12, and 669 million yuan respectively, with year-on-year decreases of 26.1%, 26.0%, 17.5%, and 25.4%, respectively.

Since the third quarter of '21, the price of glyphosate in China has continued to fall from its high point and has now fallen to a low level. According to Baichuan Yingfu data, the average market price of glyphosate in China in '23 was 82,500 yuan/ton, down 63.7% year on year. As of March 25, '24, the average market price of glyphosate in China had dropped to 56,500 yuan/ton, down 19.3% from the beginning of the year. The decline in the price of glyphosate was mainly due to weak downstream demand, but sufficient supply and high factory inventories. The decline in prices led to a decline in the company's gross margin. In '23, the gross margins of the company's original drugs and formulations were 26.3% and 20.2% respectively, a year-on-year decrease of 8.6 and 12.2 pcts, respectively. In terms of cost ratios, the company's sales, management, and financial expense ratios in '23 were 1.5%, 5.7%, and 0.2%, respectively, increasing by 0.3, 2.1, and 0.9 pct, respectively. The increase in management expenses was mainly due to the completion of the construction period of some subsidiaries and entering normal production and operation, while the increase in financial expenses was mainly due to a decrease in exchange earnings due to the appreciation of RMB against the US dollar.

Production capacity under construction is progressing smoothly, and production capacity construction and overseas registration and market layout of glyphosate are being actively promoted.

According to the company's annual report for the year 23, the company currently has production capacity of 6.02, 5.96, and 82,000 tons/year of original drugs, preparations and intermediates, and is under construction with production capacity of 23,500 tons/year of raw drugs and 41,500 tons/year of formulation. In the future, the company will also continue to promote process optimization for existing products at the Mianyang and Guang'an bases to further reduce costs and increase efficiency. In terms of glyphosate, in 2023, Lier Biotech, the holding subsidiary of the company, completed the construction of the 20,000 tons/year enzymatic glyphosate project and successfully put into operation. Jingzhou Sancaitang began construction and implementation of the 10,000 tons/year glyphosate project. It is expected that construction and operation will be completed and put into operation in 2024, and the construction of the Southern District project will be implemented. At the same time, the company has initiated the registration and market layout of glyphosate in many overseas countries, and has completed the registration of glyphosate preparations in 5 countries.

Furthermore, in terms of homoserine, the raw material of glyphosate, the subsidiary Lier Biotech completed the construction and operation of a high-serine production line and completed the construction of an integrated production line.

Profit forecast, valuation and ratings: The price of glyphosate continued to fall, putting pressure on the company's performance in '23. Since the price of ammonium glyphosate is still low, we lowered our 24-25 profit forecast and added a 26-year profit forecast. The company's net profit for 24-26 is 7.29 (29.5% reduction)/8.19 (35.0% reduction)/945 million yuan, respectively. In the future, the company will continue to expand production capacity such as glyphosate, further consolidate production and operation capabilities, and maintain the company's “gain” rating.

Risk warning: production capacity construction risks, product and raw material price fluctuations, risk of declining pesticide demand, environmental protection and production safety risks.