Adama released its 2023 annual report: annual revenue of 32.779 billion yuan, YoY -12.31%, and net profit to mother of -1,606 billion yuan.
The pesticide industry is booming, and both volume and price drops have led to a decline in performance. In 2023, the pesticide industry was at the bottom of the cycle. High inventory accumulation in market channels and subsequent dealers continued to remove inventory. As a result, pesticide market demand was weak, product prices generally declined, and the company's pesticide product sales and prices declined accordingly. On the revenue side, the company's sales in 2023 were US$4.661 billion, down 16% year on year in dollar terms. Among them, the average product sales price fell 8% year on year and sales volume decreased 7% year on year. On the profit side, due to the negative impact of falling product prices, the company's comprehensive gross margin fell 4.41 percentage points year on year to 20.73%. At the same time, the company's financial expenses increased year on year, resulting in the company's net loss for the whole year.
Faced with a challenging market environment, the company launched a “reversal plan” with the aim of breaking through against the trend by improving business quality. The company plans to focus on the value innovation segment, that is, to achieve product innovation by applying new proprietary formulation technology to existing active ingredients, while optimizing the company's product portfolio and improving production costs and operating expenses. 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 pick up, and pesticide product prices will rebound. The company's overall revenue and profit levels are expected to improve at that time.
Continue to promote the development strategy of product differentiation to drive the long-term development of the company. A differentiated product portfolio strategy helps continue to drive business growth. The company's differentiated products include products based on active ingredients with recently expired patents and high commercial potential, as well as products with proprietary formulation technology, products containing more than one mechanism of action, and biopesticides. In order to continue to expand its differentiated product line, the company continued to register and launch various new products around the world in 2023, and the new product introduction rate (new products launched in the past five years contributed to sales for the full year of 2023) reached 22%. We expect that by implementing the above product strategies, the company is expected to consolidate its differentiated competitive advantage, continue to promote business growth, and drive the company's long-term development.
Company profit forecast and investment rating: As a leading global generic pesticide company, the company's differentiated product portfolio boosts business growth and benefits from syngenta Group's internal collaboration. We are optimistic about the company's long-term development prospects. 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 2.56, 4.95, and 673 million yuan, respectively, and the corresponding EPS will be 0.11, 0.21, and 0.29 yuan, respectively. The P/E values corresponding to the current stock price will be 53, 28, and 20 times, respectively. Maintain a “Highly Recommended” rating.
Risk warning: downstream demand falls short of expectations; product prices have dropped sharply; registration of new products falls short of expectations.