1Q24 results slightly lower than market expectations
The company announced 1Q24 results, achieving revenue of 3.18 billion yuan, -29.4% year on year; net profit to mother was 430 million yuan, or -43.1% year-on-year, corresponding to profit of 1.056 yuan per share, slightly lower than market expectations. We believe that the sharp decline in performance is mainly due to sluggish industry conditions and a sharp drop in the prices of main products. According to the operating data disclosed by the company, the price of original drugs fell 32.8% year on year in 1Q24.
Development trends
Demand recovered during the peak season, and 1Q24 showed a trend of not moving in price. Entering 2024, especially after March, domestic demand for formulations recovered as the application season approached. Furthermore, overseas markets are also replenishing stocks at low levels, and transactions are active. On the other hand, due to the intensive expansion of production in the industry in recent years, compounded cost support was weak, and 1Q24 pesticide products showed a trend of not losing price. According to Baichuan data, the average price of 1Q24 kung fu methrin was 114,000 yuan/ton, down 35.9% year on year, down 8.0% month on month; 1Q24 bifenthrin average price was 144,000 yuan/ton, down 37.0% year on year and 6.4% month on month; on the other hand, the average price of glyphosate 1Q24 was 26,000 yuan/ton, down 40.3% year on year and 8.3% month on month.
We believe that the most difficult time for the pesticide plant protection industry has passed, and it may be difficult to recover in the short term. Looking at it from the top down, the price of the original drug has been falling for more than two years after reaching a peak of nearly ten years at the end of 2021. Currently, the price of the original drug has returned to the bottom range of the previous round of history in 2014-16. We believe that it will be difficult for the industry to have an overall market in 2023-24, when supply continues to be realized, but long-term losses in the industry are unsustainable. There is a possibility that some products will recover after experiencing losses, and the industry will return to a new state of break-even or marginal profit.
Construction of the first phase of the Huludao base has been accelerated, and preparations for the second phase have progressed. At present, the Huludao project in Liaoning has been fully started. We are optimistic that the first phase of the project will be gradually launched in 3Q24. Furthermore, the company is steadily advancing preliminary preparations for the second phase of the project. The products of the first phase of the project mainly include 1500t/a micosamine, 5000t/a enoxolone, 3000t/a kung futhrin, 2500t/a flusazolamide, etc., and the project plans to invest 4.23 billion yuan (including public works). The launch of the Youchuang project dispels market concerns about the company's long-term growth, and we believe it will open up room for the company's future growth.
Profit forecasting and valuation
The industry is sluggish. We lowered our 2024 profit forecast by 8% to 1.59 billion yuan, and basically kept the 2025 profit forecast unchanged at 2.03 billion yuan. The current stock price corresponds to the 2024/25 16/12 price-earnings ratio. Considering the reduction in profit and the upward shift in sector valuations, we maintained a target price of 70 yuan, corresponding to the price-earnings ratio of 18/14 times in 2024/25. There is 15% room for an increase compared to the current stock price, maintaining an outperforming industry rating.
risks
Prices of pesticide products have dropped, and the production progress of the Youjia project has fallen short of expectations.