Net profit returned to mother in Q1 in '24, downgraded to “increase holdings” rating
The company released its quarterly report for the year 24 on April 22. Q1 achieved revenue of 3.18 billion yuan, yoy -29%, net profit to mother of 430 million yuan (after deduction of 430 million yuan), yoy -43% (after deduction of -40%), and qoq +110% (after deduction +111%). Considering that demand in the pesticide market is still weak, we expect the company to have a net profit of 13.9/17.8/2.08 billion yuan in 24-26 years (previous value of 19.1/25.1/2.88 billion yuan), corresponding EPS of 3.41/4.39/5.11 yuan (previous value was 4.71/6.16/7.08 yuan). Combined with comparable company's 24-year Wind's consistent expected average of 17xPE, considering the company's leading position in the industry, the target price is 64.79 yuan, downgraded to an “increase” rating.
The poor pesticide economy is compounded by supply pressure. The decline in product prices is affected by insufficient market demand combined with overcapacity in the industry, and high inventory in global market channels. Overall pesticide prices have declined over the past 24 years. According to Zhongnong Lihua, the average market price of the main products of the company in Q1 was 11.2/14.2/2.6/15.9/8.0 10,000 yuan/ton, yoy -36%/-38%/-40%/-39%/-52%/-14%, respectively. In 2014, Q1's original drugs/formulation business revenue was 172/860 million yuan, yoy -40%/-13%, sales volume 2.5/15,000 tons, yoy -11%/-21%, average price 6.9/58,000 yuan/ton, yoy -33%/+10%.
The gross margin for Q1 in '24 was yoy-3.2pct to 24.3%, and the period expense ratio yoy-0.4pct was 7.3%.
At the bottom of the pesticide industry, the industry sentiment is expected to gradually recover in the future. According to Zhongnong Lihua, on April 21, 2024, the market prices for high-efficiency cypermethrine/biphenthrin/glyphosate/pyrazole/propiconazole/nitrocketone were 10.7/13.7/17.0/7.7/100,000 yuan/ton, respectively, a change of -0.9/-0.9/+0.0/+0.7/-0.6/-0.0/+0.7/-0.0/0.7/-0.0/-0.0/0.7/-0.0/0.7/-0.0/0.7/-0.0/0.7/-0.0/0.7/-0.0/0.7/-0.0/0.7/-0.0/0.7/-0.0/0.7/-0.0/0.7/-0.0/0.7/-0.0/0.7/-0.0/-0.0/0.7/-0.0/0.7/-0.0/0.7/-0.0/0.7/-0.0/-0.0/0.7/-0.0/0.7/-0.0/0.7/-0.0/0.7/-0.0 We believe that the pesticide industry is expected to gradually recover in the future, along with factors such as the restoration and replenishment of overseas stocks and high crop prices to support demand expectations.
The original drug continues to be laid out, and new projects are progressing in an orderly manner
According to the annual report for the year 23, the company's Liaoning Youchuang project completed the capping of 37 buildings as scheduled before freezing in November 23, to achieve the transition from outdoor to indoor. The first phase of the Huludao Phase I project will be commissioned and put into operation in 2024, and the second phase project is being rapidly followed up. Furthermore, the Youjia Phase 4 Phase 2 Project Company completed commissioning at the end of November 23, quickly achieved production results, and simultaneously accelerated the promotion of the Youjia Phase 5 project. The company has 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.
Risk warning: risk of crude oil price fluctuations; risk of unstable supply of raw materials; risk of demand falling short of expectations.