Yangnong Chemical released its 2023 annual report: annual revenue of 11.478 billion yuan, YoY -27.41%, net profit to mother of 1,565 billion yuan, YoY -12.77%, corresponding EPS of 3.85 yuan. The company plans to pay a cash dividend of 8.80 yuan (tax included) for every 10 shares.
The pesticide industry market is sluggish, and product prices have declined year on year, leading to a decline in revenue and profits. On the revenue side, in 2023, the average price of the company's original drug products fell 29.54% year on year and the average price of pharmaceutical products fell 3.5% year on year. As a result, the company's original drug sector revenue fell 22.2% year on year to 7.384 billion yuan, and the pharmaceutical sector revenue fell 1.22% year on year to 1,676 billion yuan. On the profit side, the decline in product prices led to a simultaneous decline in gross margin. In 2023, the company's gross margin of the pharmaceutical sector fell 1.37 percentage points year on year to 30.16%, and the gross margin of the pharmaceutical sector fell 19.67 percentage points year on year to 27.39% year on year.
The company's pesticide product prices are generally in a historical position, and future industry prosperity needs to be improved. 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.
New projects are progressing in an orderly manner, and production capacity continues to be laid out. At present, the Youchuang project in Liaoning has fully started; the Youjia Phase 4 Phase 2 project completed commissioning at the end of 2023, which quickly achieved production results; and the Youjia Phase V project is progressing at an accelerated pace. The company plans to complete the construction of the first phase of the Liaoning Youchuang Phase I project within 2024 and accelerate the construction of the second phase of the project. We believe that subsequent launches of projects under construction are expected to continue to contribute to the company's performance growth.
Company profit forecast and investment rating: As a leading pesticide company in China, the company's ongoing projects are progressing in an orderly manner, while benefiting from Syngenta Group's internal resource collaboration. We expect the company to continue to grow in the medium to long term. 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 1,741, 20.22, and 2.06 billion yuan, respectively, with corresponding EPS of 4.28, 4.97 and 5.67 yuan, respectively. The P/E values corresponding to the current stock price are 12, 10, and 9 times, respectively. Maintain a “Highly Recommended” rating.
Risk warning: downstream demand falls short of expectations; product prices have fallen sharply; new production capacity investment falls short of expectations; the internal integration of “Syngenta Group” assets falls short of expectations; and market competition intensifies.