Lier Chemical released its 2023 annual report: Annual revenue of 7.851 billion yuan, YoY -23%, net profit to mother of 604 million yuan, YoY -67%, corresponding EPS of 0.75 yuan.

Prices of core pesticide products fell sharply year on year, leading to a decline in revenue and profits. On the revenue side, the price of the company's core product, glyphosate, fell sharply year on year due to increased supply in the industry. As a result, the company's pesticide raw drug segment revenue fell 26.09% year on year to 4.794 billion yuan, and the pesticide formulation sector's revenue fell 25.98% year on year to 1,656 billion yuan. On the profit side, due to the decline in pesticide product prices, the gross margin of the company's pesticide raw materials sector fell 8.6 percentage points to 26.26% year on year, and the gross margin of the pesticide formulation sector fell 12.2 percentage points to 20.15% year on year, leading to a sharp decline in the company's overall profit level.

The industry is at the bottom of the cycle, waiting for the boom to pick up. The pesticide industry in which the company is located is affected by factors such as increased new supply, weak demand side, and high overall inventory volume of the industry. The overall price level continues to decline, and the industry as a whole is at the bottom of the cycle. We believe that inventory removal from overseas markets is nearing its end, and the new cycle of stocking is about to begin. At that time, market demand will gradually be released, industry sentiment will bottom up, and pesticide product prices will rebound. At that time, the company's overall revenue and profit levels are expected to improve.

The company is deeply involved in the glyphosate industry and actively promotes the progress of the glyphosate refining project. Lier Biotech, a holding subsidiary of the company, completed the construction and successfully put into operation of the 20,000 tons/year enzymatic glyphosate project in 2023; Jingzhou Sancaitang has begun construction of the 10,000 tons/year essential glyphosate project. In addition, the company has initiated the registration and market layout of glyphosate in many overseas countries, and has now completed the registration of glyphosate preparations in 5 countries. We expect that in the future, with the gradual completion and commissioning of the company's glyphosate project and the continuous expansion of overseas markets, the sales scale of the company's glyphosate products is expected to increase further.

Company profit forecast and investment rating: We are optimistic that as a leading domestic glyphosate enterprise, the product scale will continue to expand. After the pesticide industry recovers, the company's profit level is expected to improve. Based on the company's 2023 annual report, we adjusted the company's profit forecast for 2024-2026 accordingly. We estimate that the company's net profit for 2024-2026 will be 715, 785, and 884 million yuan, respectively, and the corresponding EPS will be 0.89, 0.98, and 1.09 yuan, respectively. The P/E values corresponding to the current stock price will be 10, 9, and 8 times, respectively. Maintain a “Highly Recommended” rating.

Risk warning: downstream demand release falls short of expectations; product prices fall; project construction falls short of expectations.