Incident: The company released its 2023 annual report. During the period, it achieved operating income of 11.478 billion yuan, net profit to mother of 1,565 billion yuan, -12.77% year on year; 2023Q4 achieved revenue of 2204 billion yuan in a single quarter, -18.63% year on year, and net profit to mother of 204 million yuan, +31.03% year over year. The company plans to distribute a cash dividend of 8.80 yuan (tax included) to all shareholders for every 10 shares, for a total of 357 million yuan in cash dividends, with a dividend ratio of 22.85%.
Downstream demand for pesticides is stable, and industry profits are expected to gradually recover. The company is the only local Chinese company among the top 10 agrochemical companies in the world. It has a rich product matrix. It is currently the only domestic manufacturer in the methrin pesticide industry that synthesizes intermediates and produces proposed pyrethrin raw materials. Since 2022Q4, stocks in the global pesticide market have been high, demand has declined rapidly, and prices of pesticide products have dropped all the way down in 2023. According to Baichuan Yingfu data, as of March 26, 2024, the price of glyphosate was 25,300 yuan/ton, down 27.93% from the same period last year; the price of high-efficiency cypermethrin was 108,000 yuan/ton, down 35.71% from the same period last year; and the price of methacerone was 61,500 yuan/ton, down 12.14% from the same period last year. Although global food prices declined from a high point in 2023, demand for human food crops is stable, so demand for pesticides is relatively rigid.
In 2023, the company sold 96,500 tons of original drugs, up 10.43% from last year, and sold 35,700 tons of formulations, up 2.36% from last year. As major grain-producing countries such as Brazil and the United States continue to expand the cultivation area of agricultural products, overseas storage is coming to an end, and a new cycle of stocking starts, industry profits are expected to gradually recover.
Multiple projects continue to advance, and increased production capacity provides growth impetus. The company's Youjia Phase IV phase 1 mainly built the four projects of phenyl ether metaclozole, nitrosone, biphenyl methrin and fluoridine, which were completed in December 2021; the second phase completed commissioning in November 2023, and the additional 7310 tons of pyrethroid production capacity can quickly reach production volume, further stabilizing the company's leading position in the methrin industry.
In addition, the company invested 4.2 billion yuan to build the Huludao Youchuang Project. In the future, it is expected to add 4,500 tons/year of insecticides (kung fu methrin, tetracloxamide), 8050 tons/year herbicides (micronidine, salvia) and 3100 tons/year of biocides (dimethoxazole, flusazol hydroxylamide), and 7,000 tons of pesticide intermediates. In the future, projects such as Youchuang will be completed and put into operation, which is expected to further enhance the production capacity of the company's original drugs, expand the scale of production capacity, and optimize the product structure.
Investment advice: The company's net profit for 2023-2025 is estimated to be 17.28/20.20/2.55 billion yuan, corresponding EPS is 4.25/4.97/5.30 yuan, and the PE corresponding to the current stock price is 12.05/10.31/9.67, giving a “buy” rating.
Risk warning: demand falls short of expectations, project construction falls short of expectations, product price fluctuations, etc.