Event: The company publishes its 2023 annual report. In 2023, the company achieved revenue of 32.779 billion yuan, a year-on-year decrease of 12.31%; realized net profit of 1,606 billion yuan, a year-on-year decrease of 363.52%; realized net profit after deduction of 1,851 billion yuan, a year-on-year decrease of 469.10%. With 2023Q4, the company achieved revenue of 8.119 billion yuan in a single quarter, a year-on-year decrease of 12.73% and a month-on-month increase of 9.62%; realized net profit to mother of 563 million yuan, an increase of 405 million yuan in year-on-year losses, and a year-on-month reduction of 237 million yuan.
Channel inventories are high, demand is weak, and prices and sales of plant protection products are under pressure. The prices of major crops in 2023 are still in a relatively high range, supporting planting area and crop investment, thereby maintaining healthy demand for plant protection products in the terminal market. However, due to high channel inventories, channel demand continued to weaken, which ultimately led to a decline in plant protection product prices and sales. In 2023, the company's product prices fell 8% year on year, and sales volume decreased 7% year on year. Looking at different regional markets, the company's revenue in the EAME (Europe, Africa and Middle East), North America, Latin America, and Asia Pacific markets in 2023 declined by 3.8%, 16.3%, 15.5%, and 13.8%, respectively. By product, the company's revenue of herbicides, biocides, pesticides, and fine chemical products declined by 16.5%, 3.7%, 7.2%, and 24.2% respectively in 2023.
Implement a “reversal plan” to improve business quality and reshape corporate value, and significantly improve operating cash flow. In order to cope with the challenging market environment of the plant protection industry in 2023, the company launched a “reversal plan”. The plan mainly includes three elements: (1) reshaping market positioning to achieve product innovation market segments by applying new proprietary formulation technology to existing active ingredients; (2) optimizing product portfolios and focusing on improving business quality in value innovation segments using key strategic crops as a starting point; and (3) improving production costs and operating expenses of Adama. Through countermeasures including the “Reversal Plan”, the company's cash flow improved significantly in 2023. Net operating cash flow in 2023 was 2,618 billion yuan, a significant increase of 178.28% over the previous year.
Continue to expand the differentiated product line and promote the launch and registration of new products. The company continued to register and launch a variety of new products in various markets around the world during 2023. New products launched in the past five years contributed 22% of sales for the full year of 2023. The company's main differentiated products include: products based on raw drugs with recently expired patents and high commercial potential, products using proprietary formulation technology, products containing more than one mechanism of action, and biopesticides. The company introduced 11 new differentiated products in some countries in 2023 and obtained registration for 20 new differentiated products.
Profit forecasting, valuation and rating: Affected by channel inventory, the company's performance is under pressure. The company achieved significant improvements in operating cash flow through active countermeasures. Considering that the current price of plant protection products is still low, we lowered the company's 24-25 profit forecast and added a 26-year profit forecast. The company's net profit for 24-26 is estimated to be 0.82 (down 86%)/5.32 (37% decrease)/758 million yuan, respectively. With the elimination of channel inventory, the company's profitability as a leading global generic pesticide formulation is expected to pick up and maintain a “buy” rating.
Risk warning: Prices of pesticide products fluctuate, channel inventory removal falls short of expectations, new product marketing risks.