Incident: The company released its 2023 annual report. During the reporting period, it achieved operating income of 11.478 billion yuan, a year-on-year decrease of 27.41%, a year-on-year decrease of 12.77%, after deducting non-net profit of 1,506 billion yuan, a year-on-year decrease of 22.05%; of these, it achieved revenue of 2.204 billion yuan in a single quarter, a year-on-year decrease of 18.63%, and net profit of 204 million yuan, an increase of 31.09% over the previous year.
The pesticide industry was generally sluggish during the reporting period, and falling prices affected performance. During the reporting period, in the face of the huge challenges of the sluggish agrochemical industry, insufficient market demand, and an overall cliff-style decline in product prices, the company actively strengthened cost reduction and efficiency, and its business performance continued to be at the forefront of the agrochemical industry. In 2023, the company's raw drug business revenue was 7.38 billion yuan, down 22.2% year on year, gross profit margin was 30.16%, down 1.37 pct year on year, sales volume was 96,000 tons, up 10.4% year on year, average sales price was 76,500 yuan/ton, down 29.5% year on year; pharmaceutical business revenue was 1.68 billion yuan, down 1.22% year on year, gross profit margin was 27.4% year on year, down 16.7 pcts year on year, sales volume 36,000 tons, up 2.4% year on year, average sales price was 47,000 yuan/ton, down 3.50% year on year.
Market prices for core products have declined, and the domestic raw drug market is progressing steadily. In 2023, the average market prices of the company's products glyphosate, kung futhrin, biphenthrin, and nitrosulfonate were 32,500, 1.41 million, 180,000, and 109,000 yuan/ton, respectively, down 47.8%, 33.7%, 38.9%, and 25.0% year-on-year respectively. Currently, prices are basically in the bottom area. In terms of original pharmaceuticals, the pharmaceutical market actively responded to challenges such as weak demand and high inventories, and completed sales were basically the same as last year; the domestic pesticide market faced serious challenges of the release of new production capacity, falling product prices, and fierce market competition, and sales increased 95% year on year; the international pesticide market was affected by channel removal from inventory, falling prices of original drugs, and a sharp drop in orders from multinational companies, etc., and sales declined year on year.
Continue to strengthen the development of innovative pharmaceuticals and launch new projects to establish growth potential. The company continues to promote the integrated development strategy of pesticide “innovative drug development - original drug production - formulation sales”. It has successively developed a number of new pesticide varieties, including chlorofluorothrin, fluoromorpholine, azacarboxamide, etc., all of which have become dominant varieties in the domestic market, accelerating the development of differentiated formulation products. The company completed commissioning of the Youjia Phase 4 Phase 2 project at the end of November, quickly achieved production results, and simultaneously accelerated the Youjia Phase 5 project; completed the installation and commissioning of the formulation plant; Liaoning Youchuang plans to invest 4.24 billion yuan to build projects with an annual output of 15,650 tons of pesticide raw materials and 7,000 tons of pesticide intermediates. The company will use the construction of the Youchuang Huludao project as the main battleground for four ventures. In 2024, it will accelerate the completion of the first phase of the Youchuang Phase 1 installation and commissioning.
Maintain a “Highly Recommended” investment rating. The company's net profit from 2024 to 2026 is estimated to be 1.75 billion yuan, 2.12 billion yuan, and 2.45 billion yuan, EPS is 4.31, 5.22, and 6.03 yuan, respectively. The current stock price corresponds to PE of 11.9, 9.9, and 8.5 times, respectively, maintaining a “highly recommended” rating.
Risk warning: product prices are falling, raw material prices are rising, and the commissioning of new projects falls short of expectations.