Matters:
Yangnong Chemical released its 2023 annual report. In 2023, the company achieved revenue of 11.478 billion yuan, -27.41% year-on-year, and realized net profit of 1,565 billion yuan, or -12.77% year-on-year. Among them, Q4 achieved revenue of 2.04 billion yuan, -18.63%/-0.14% YoY, and realized net profit of 204 million yuan, or +31.09%/-13.81% YoY.
Yangnong Chemical announced the 2023 profit distribution plan. It plans to distribute a cash dividend of 0.88 yuan per share. It is expected to pay a cash dividend of 358 million yuan, with a dividend payment rate of 22.85%.
Commentary:
Sales volume was impressive during the inventory removal cycle, and profit margins for cost reduction and efficiency remained high. Pesticide prices continued to decline in 2023, and downstream procurement was flat. Yangnong Chemical still showed strong shipping capacity. In 2023, the company's original drug business achieved sales volume of 96,500 tons, +10.43% year over year, and the formulation business achieved sales volume of 35,700 tons, +2.36% year over year, achieving a slight increase, but due to price, the original drug business achieved revenue of 7.383 billion yuan, -22.20% year on year. In 2023, the price of basic chemicals showed a downward trend, and the company's raw material costs were optimized. In 2023, the company achieved a gross sales margin of 25.60%, -0.08PCT year on year. On the other hand, due to positive returns and recovery of bad debts due to changes in fair value, the company made significant improvements on the cost side, and finally achieved a net sales interest rate of 13.65%, +2.29PCT year on year, reaching the highest level in nearly five years.
The Northern Hemisphere inventory has begun, and we look forward to the restoration of the pesticide cycle. In 2023, the pesticide industry was in a storage cycle, and the price of the original drug continued to decline. According to data from Zhongnong Lihua, the average prices of products such as glyphosate, biphenthrin, kung futhrin, and nitronone in Yangnong Chemical products in 2023 were 3.28, 17.78, 13.95, and 109,700 yuan/ton, respectively, -48.64%, -39.10%, -33.58%, and -22.84%. As of March 24, 2024, the prices of the above 4 products were 2.56, 13.80, 10.80, and 10.00 million, respectively Yuan/ton is in the 12.18%, 0,0,0 fraction since September 2015. Starting with pesticide storage in 202H2, the southern hemisphere has gone through two peak demand seasons, and inventories have basically returned to normal levels. The second peak season in the northern hemisphere begins in the spring of 2024. The pesticide cycle is expected to be repaired in the second half of 2024, and the company is expected to fully benefit as a leader in the domestic pesticide industry.
Youchuang and Youjia projects are progressing rapidly, and they are backed by Sinochem to guarantee sales. In 2023, the company rapidly promoted the Youchuang Phase I and Youjia Phase IV projects. Youchuang Phase I had already achieved the transition from outdoor to indoor before November. By the end of the year, the project progress was 22%. The commissioning of the Youjia Phase IV Phase II project was completed at the end of November, and production results were achieved quickly. It is expected to contribute to performance in 2024. The rapid progress of the project requires sales guarantee. In 2024, the company expects sales related transactions to Sinochem Systems to be 5.459 billion yuan, +85.66% over the same period, which will provide a strong guarantee for the digestion of the company's new project capacity.
Investment advice: We are firmly optimistic about the long-term development of Yangnong Chemical, a leading pesticide company. Under the protection of Syngenta and the company's own endogenous innovation ability, it is expected that the company's performance will show strong resilience. As pesticide prices are still declining, we lowered our profit forecast for 2024 and 2025. We expect the company's net profit to be 17.09/20.83 billion yuan/2,318 billion yuan in 2024-2026 (pre-2024/2025 value was 19.24/2.34 billion), and +9.2%/+21.9%/+11.3%, respectively. Based on the comparable company's PE and the company's own situation, we gave the company 15x P/E in 2024, with a target price of 63.15 yuan/share, maintaining a “strong” rating.
Risk warning: pesticide prices continue to decline; pesticide storage falls short of expectations; project construction falls short of expectations;