Key points of investment
The company released its 2023 annual report, achieving full year operating income of 5.406 billion yuan, -8.24% year on year; realized net profit of 403 million yuan, -26.73% year on year; realized net profit after deduction of 279 million yuan, or -30.26% year on year; achieved gross profit margin of 19.76%, -1.83 pct year on year, achieved net profit margin of 6.42% year on year, -2.92 pct year on year.
The overall operating pressure is obvious
In 2023, pig prices remained low throughout the year, and the farm experienced deep losses, which suppressed the operations of upstream sports insurance companies, and all business segments of the company experienced varying degrees of decline. Among them, the biological products sector achieved operating income of 1.01 billion yuan, a year-on-year decrease of 16.77%, and a gross profit margin of 46.12%, a year-on-year decrease of 2.97 pcts. Under the severe market situation, the company continued to stabilize the cooperative relationships with the Group's customers while strengthening the “one province, one policy” sales policy. The overall sales volume and unit sales price of products in key provinces increased, and the market share achieved contrarian growth; the chemical sector achieved operating revenue of 1.26 billion yuan, a decrease of 12.09% year on year, achieving a gross profit margin of 21.47% and a year-on-year decrease of 4.68 pcts. Facing the sluggish market environment in the API industry, the company adheres to the “one product, one policy” sales policy to ensure that the sales volume of products remains stable; the feed sector achieved operating income of 1.03 billion yuan, a year-on-year decrease of 6.91%, achieving a gross profit margin of 23.55%, an increase of 4.99 pcts over the previous year. The company achieved a good profit contribution through internal benchmarking of the five business units of Shandong Hualuo, Jijin and Premix to form a competitive model of competition; the trade sector achieved operating income of 2.08 billion yuan, a decrease of 0.51% over the previous year, and achieved a gross profit margin of 3.42%, an increase of 0.59 pct over the previous year.
R&D results have been implemented one after another
In 2023, the company's R&D expenses were 123 million yuan, a year-on-year decrease of 14.25%, and a year-on-year decrease of 0.16 pct, mainly due to a year-on-year decrease in direct material costs and outsourced R&D expenses for R&D projects. At the same time, the company's capitalized R&D investment increased sharply by 90.59% year on year to 82 million yuan, mainly due to the increase in contract costs incurred by non-epidemic R&D in accordance with the same period last year.
In 2023, the company obtained 7 new veterinary drug registration certificates, and 2 products passed emergency reviews. Among them, the inactivated vaccine for bovine nodular dermatosis is the first vaccine product approved in China for emergency prevention of bovine nodular skin disease. It is a veterinary drug required for emergency treatment of major animal diseases in the country. The launch of this product will strongly enhance the company's market competitiveness.
Epitaxial acquisitions and collaborative integration go hand in hand
In the second half of 2023, the company acquired 65% of Chengdu Zhongmu's shares with its own capital of 127 million yuan and became its controlling shareholder. This acquisition filled the gap in the company's veterinary injection business, and the product line was further enriched. The acquisition plan's performance promise is that the cumulative net profit for 2023, 2024, and 2025 will not be less than RMB 40 million. In 2023, Chengdu Zhongmu achieved net profit of 21.2581 million yuan, with a completion rate of 53.15%.
The company and Muyuan Co., Ltd. jointly funded the establishment of Zhongmu Muyuan Animal Pharmaceutical Co., Ltd. in 2022 and invested in the construction of the Nanyang production base project of Zhongmu Muyuan Animal Pharmaceutical Co., Ltd. to continue to consolidate and strengthen the company's market position in the field of veterinary chemicals through the expansion of production of products independently developed by the company. By the end of 2023, the progress of the Zhongmu Muyuan Biopharmaceutical Production Project was 20.18%. We believe that the project is expected to be implemented and put into operation in the second half of 2024, contributing to the company's performance growth.
Investment advice
As an established animal insurance enterprise backed by central enterprises, the company's operating vitality continues to be stimulated in the promotion of state-owned enterprise reform, research and development results are being implemented one after another, and the upcoming commissioning of a new chemical plant indicates that the company's prospects are promising. We believe that as the downstream aquaculture cycle reverses, the company will demonstrate its strong competitive advantage. It is estimated that from 2024 to 2026, net profit attributable to mother will be 515, 6.02, and 721 million yuan, corresponding EPS of 0.50, 0.59, and 0.71 yuan, respectively, and corresponding PE of 17.1, 14.7, and 12.2 times, respectively, maintaining the “buy” rating.
Risk warning
Risk of major animal diseases; risk of market competition; risk of abnormal exchange rate fluctuations