Incident: Yangnong Chemical released its 2023 annual report, achieving operating income of 11.478 billion yuan, a year-on-year decrease of 27.41%; net profit attributable to shareholders of listed companies was 1,565 billion yuan, a year-on-year decrease of 12.77%. Based on a total share capital of 406 million shares, earnings per share were 3.87 yuan, and operating cash flow per share was 5.89 yuan.
Among them, the fourth quarter achieved operating income of 2.04 billion yuan, a year-on-year decrease of 18.63%; realized net profit attributable to shareholders of listed companies of 204 million yuan, an increase of 31.09% over the previous year; equivalent to a quarterly EPS of 0.50 yuan.
Sales increased year-on-year, and the year-on-year decline in the company's revenue and profit scale was mainly due to a significant year-on-year decline in the price of original pharmaceutical products. In 2023, the company's sales revenue was 11.478 billion yuan, down 4.333 billion yuan from the previous year; structurally, the original drug, formulation and trade revenue were 7384 billion yuan, 16.76 billion yuan, and 2,224 billion yuan respectively, with year-on-year changes of -21.07, -0.21, and -2142 billion yuan, YOY -22.20%, -1.22%, and -49.06%, respectively. Since the fourth quarter of 2022, the pesticide industry's global market channels have been exposed to high inventory risks, demand has declined rapidly, and it has entered the inventory removal cycle. The year-on-year decline in the company's revenue was mainly due to the decline in sales prices of pesticide products due to a decline in industry sentiment. In terms of sales prices, the average sales price of the company's original drug in 2023 was 76,500 yuan/ton, and the average sales price of the preparation was 46,900 yuan/ton, down 29.54% and 3.50% from 2022, respectively. In terms of sales volume, sales of original drugs for the full year of 2023 were 96,500 tons, an increase of 0.91 million tons over the previous year, yoy +10.4%. The pharmaceutical (undiscounted) business sales volume was 35,700 tons, an increase of 0.08 million tons, yoy +2.4% year on year. Under the downward pressure of product prices, gross margin remained stable, achieving a comprehensive gross profit margin of 25.60%, yoy-0.08pcts; gross profit was 2,939 billion yuan, a year-on-year decrease of 1,122 billion yuan; the company continued to promote cost reduction and efficiency on the cost side.
Non-recurrent factors, such as strong fee control and exchange gains, have a positive impact on net profit. In 2023, the company strengthened cost control, and sales expenses decreased by 116 million yuan year on year; management expenses decreased by 324 million yuan year on year (soil restoration costs of 185 million yuan were calculated in the previous period, while intermediary consulting fees, sewage charges, and work stoppage losses decreased significantly year on year). The company's financial expenses, net income from investment, and changes in fair value decreased by a total of 0.13 million yuan (negative impact on net profit); the company's R&D expenses maintained a high intensity of 418 million yuan, a decrease of only about 80 million yuan from '22. In addition, credit impairment losses changed from '22 to $189 million, and asset impairment losses decreased by about $144 million compared to '22 (all had a positive impact on net profit).
The establishment of Excellent Manufacturing in Liaoning is progressing steadily to accelerate the output of innovative pharmaceutical results. In 2023, the company made Liaoning Youchuang the focus of project construction, speeding up the completion of the first phase of installation and commissioning, and accelerating the second phase of construction. At the same time, it is preparing a list of the second phase of the project. In addition, the commissioning of the Youjia Phase 4 Phase 2 project was completed at the end of November, and production results were achieved quickly; the above is expected to become an important source of growth for the company in 2024. In terms of pharmaceutical innovation, the company's level of independent creation is leading in the industry. Of the 5 varieties created independently in China with annual sales exceeding 100 million yuan, the company accounts for 3. The company further promotes research and development of creative compounds, does a good job of research on in-hand R&D pipeline compounds, and accelerates the output of technological results.
Profit forecast and valuation: Taking into account changes in the company's product prices and project progress, the company's net profit from 2024 to 2026 is estimated to be 16.2/19.4/2.42 billion yuan, respectively (the value before 2024 and 2025 was 1,93/2.46 billion yuan), maintaining the “buy” investment rating.
Risk warning: declining pesticide boom, falling product prices, large fluctuations in raw material prices, lower progress and profits of new projects than expected, abnormal climate risk and exchange rate risk