Incident: The company released its 2023 financial report on March 26. In 2023, it achieved revenue of 32.779 billion yuan, -12.31% year-on-year; net profit to mother was -1,606 billion yuan, -363.52% year-on-year. 2304 achieved revenue of 8.119 billion yuan, -12.74% YoY and +9.61% YoY. Net profit from single Q4 was 564 million yuan, year-on-year -405 million yuan, and +236 million yuan month-on-month.
The pesticide industry lost inventory during the downturn, demand fatigue, and falling child prices dragged down revenue due to 1) high channel inventories; 2) the high interest rate environment and lower prices of original drugs in the Chinese market prompted channels to prefer immediate procurement; 3) poor weather conditions in Europe, Africa and the Middle East affected terminal demand to a certain extent, and the decline in average product prices and plant protection product sales dragged down revenue. Looking for products, the company's revenue for plant protection products/fine chemical products in 2023 was 300.15/2,765 billion yuan, -11.12%/-23.48% year-on-year, with sales volumes of 65.31/1.5615 million tons, respectively -5.35%/+0.2% year-on-year; average sales prices were 45956.3/1770.6 yuan/ton, respectively, -6.09%/-23.64% year-on-year respectively, putting pressure on profits. In 2023, the company's gross margin was 20.73%, -4.41pcts, of which 2304 gross margin was 19.35%, -3.83pcts year-on-year, and +1.39pcts month-on-month. By product, the gross margin of plant protection products/fine chemical products in 2023 was 21.41%/13.38%, respectively, -3.79pcts/-11.20pcts, 23H2 plant protection products/fine chemical products had a gross margin of 18.93%/16.18%, and -4.73pcts/-9.09pcts year-on-year; due to channel inventory removal and high overseas interest rates, channels tend to procure immediately, and downstream customers are wait-and-see for procurement. At the same time, channel demand was weak, compounded by a year-on-year decline in the price of original drugs, and the pricing of the company's main plant protection products was under pressure, dragging down the company's profits. The increase in the company's financial expenses is mainly due to an increase in interest expenses on purchase payments due to rising interest rates. Launching a “reversal plan” to drive long-term growth with flexible performance and differentiated formulation products that end in the medium term, the company initiated and implemented a “reversal plan”, through 1) focusing on the “value innovation” market segment to enable innovation with proprietary formulation technology rather than relying on novel original drugs; 2) optimizing the product portfolio and improving business quality by focusing on strategic crop fields in the “value innovation” customer segment; 3) improving costs and operating expenses, and reshaping the operating model. The company's net cash flow from operating activities increased by 178.28% in 2023. The pesticide industry is at the bottom of the boom in 2023. We are optimistic about the performance flexibility brought about by the end of mid-term warehousing and the rise in average product prices. As a leading global plant protection company, the company has more than 300 kinds of centrally managed raw materials and 1,650 compound products and formulations.
In 2023, the company launched 11 new differentiated products and obtained registration certificates for 20 new differentiated products in specific market countries. In 2024, the company's two natural plant-derived amino acid biostimulants, Maiyou and Jianyou, were launched to fully develop biologics and enter the biostimulant circuit. It is expected that long-term growth will be driven by differentiated high-value formulation products.
The company's net profit for 24/25/26 is estimated to be 2.24/5.05/843 million yuan, giving it a “buy” rating for the first time.
Risk warning:
R&D projects fall short of expected risks; demand falls short of anticipated risks; prices of pesticide products fluctuate.