Core views
Global economic growth slowed in 2023, and the pesticide industry declined. Downstream customers on the demand side continue to remove inventory, large-scale domestic production capacity is being released centrally on the supply side, oversupply is oversupply, and pesticide prices are falling. As a leader in the industry, the company's ability to resist cycles is prominent, and sales volume bucked the trend. For the full year of 2023, the company achieved operating income of 11.478 billion yuan, a year-on-year decrease of 27.41%; realized net profit of 1,565 billion yuan, a year-on-year decrease of 12.77%. Among them, in the 23Q4 single quarter, the company achieved revenue of 2,204 billion yuan, a year-on-year decrease of 18.63%; net profit to mother was 204 million yuan, an increase of 31.09% over the previous year. As inventory removal comes to an end, future demand is expected to gradually pick up, and performance is expected to continue to recover. At the same time, as the company's project construction progresses rapidly, the company has broad room for medium- to long-term growth.
occurrences
The company released its 2023 annual report
On March 25, 2024, the company released its 2023 annual report. For the full year of 2023, the company achieved operating income of 11.478 billion yuan, a year-on-year decrease of 27.41%; realized net profit of 1,565 billion yuan, a year-on-year decrease of 12.77%; and realized deducted non-net profit of 1,506 billion yuan, a year-on-year decrease of 22.05%. Among them, the 23Q4 single quarter achieved revenue of 2.04 billion yuan, a year-on-year decrease of 18.63% and a decrease of 0.14%; realized net profit to mother of 204 million yuan, an increase of 31.09% year-on-year and a decrease of 13.81% month-on-month; and realized deducted non-net profit of 203 million yuan, an increase of 53.01% year-on-year and a decrease of 8.82% month-on-month.
Brief review
Overseas inventory removal is coming to an end, and demand is gradually recovering
In 2023, against the backdrop of a slowdown in global economic growth and a decline in international trade growth, the pesticide industry's terminal demand was impacted and it entered the inventory removal cycle. At the same time, due to the concentrated release of large-scale domestic production capacity in 2023, competition in the industry is fierce, further exacerbating the downward trend in pesticide prices. In the 23Q4 single quarter, the company achieved revenue of 2.04 billion yuan, a year-on-year decrease of 18.63% and a decrease of 0.14% month-on-month; realized net profit to mother of 204 million yuan, an increase of 31.09% year-on-year and a decrease of 13.81% month-on-month. With the end of inventory removal and a gradual recovery in demand, the price of original drugs is expected to rebound, and the company's profitability will continue to recover.
Sales of original drugs bucked the trend, and market share expanded rapidly
In a situation where the industry removed inventory and terminal demand was weak, the company's leading resilience was prominent, achieving 96,500 tons of original drug sales, an increase of 10.43% over the previous year. Among them, in the domestic market, facing the challenges of concentrated release of domestic production capacity and increased market competition, the company strengthened customer management and seized market orders. In the international market, the company dug deep into the potential of third-party customers, increased sales of key varieties, and increased the global registration layout of Youchuang products. However, due to falling prices of original drugs and channel inventory removal, sales declined year-on-year.
Project construction is progressing rapidly to help the company grow in the future
The Huludao project is expected to become the main driving force for the company's future growth and expand the company's development space. The Yangnong Huludao large-scale fine chemical project has a total investment of about 10 billion yuan, with a total investment of 4.2 billion yuan in the first phase. It will produce industry-leading products such as insecticides, biocides, herbicides and plant growth regulators, including varieties such as micronium, dimethoxazole, kung fu methrin, flusazolamide, etc., and can achieve an annual output value of about 15 billion yuan after delivery. At the same time, Liaoning Youchuang achieved the transition from outdoor to indoor operation. The Youjia Phase IV project completed commissioning and successfully achieved production results. The Youjia Phase V project progressed rapidly. The company also completed the installation and commissioning of the formulation plant, as well as the construction of projects such as the headquarters office building and the Plant Protection Research Institute's Process Technology Center. It is expected that it will continue to contribute to the company's performance growth in the future.
Profit forecast and valuation: The company is expected to achieve net profit of 1,605 billion yuan, 1,891 billion yuan, and 2,213 billion yuan in 2024, 2025, and 2026, respectively. The corresponding EPS is 3.95 yuan, 4.65 yuan, and 5.45 yuan, respectively, and the corresponding PE is 13.02X, 11.05X, and 9.44X, respectively.
Risk warning: 1. Geopolitical risk. The company has a large export business and a large share. Under the new international situation, any trade restrictions, fees or other effects caused by geopolitics may adversely affect the company's business, financial situation and business performance; 2. Environmental protection and production safety risks. Most of the raw materials used in the company's production are flammable, explosive, corrosive or toxic substances. The production process involves processes such as high temperature and high pressure. Environmental pollution or production safety accidents will cause risks to the company's production and operation; 4. Production capacity investment falls short of expectations. The Huludao production base is still in the early stages of construction, and due to various external causes, the progress of the new project may fall short of expectations.