The company released its 2023 annual report and 2024 quarterly report. Revenue for the full year of 2023 was 5.086 billion yuan, down 39.08% year on year; net profit to mother was 283 million yuan, down 84.66% year on year; net profit after deducting non-return to mother was 282 million yuan, down 84.87% year on year. Among them, revenue for the fourth quarter was 1,483 billion yuan, up 18.73% year on year; net profit to mother was 0.26 million yuan, down 83.03% year on year; net profit after deducting non-return to mother was 0.28 billion yuan, down 78.30% year on year. Revenue for the first quarter of 2024 was 1,585 million yuan, up 17.18% year on year; net profit to mother was 82 million yuan, down 33.49% year on year; net profit without return to mother was 80 million yuan, down 33.47% year on year.
The volume and price of major products are stabilizing, and performance is expected to continue to improve. Since the first quarter of 2024, the pesticide industry has recovered, and the volume and price of the company's main products have stabilized. According to the company announcement, 2024Q1's sales volume of herbicides, insecticides, chlor-alkali, and flame retardants improved to 24781, 6714, 131,442, and 20793 tons, respectively, and +42.4%, +19.2%, +3.8%, and +121.3% year-on-year, respectively, -1.2%, +33.5%, -3.8%, and +17.2% month-on-month respectively. In addition, prices have gradually stabilized. The average prices of 2024Q1 herbicides, insecticides, chlor-alkali, and flame retardants were 28,957, 26,159, 893, and 8,710 yuan/ton, respectively, of -22.3%, -7.1%, -10.7%, and +1.7%, respectively, and +5.7%, -1.6%, +0.7%, and -6.5% month-on-month respectively. As inventory removal comes to an end, we believe that the pesticide industry is bottoming out and product prices are expected to rise, driving the company's performance to continue to improve.
A special incentive plan was issued to guarantee the implementation of the Zhijiang Project and the Guizhou Project. The company announced the 2024-2028 incentive plan. In addition to requiring a weighted average return on net assets and net profit after deduction, the plan also specifically addresses the promotion of key projects (Zhijiang Project and Guizhou Project) in each year. Among them, the first phase of the Zhijiang Project is required to complete equipment installation in December this year and achieve 2 million tons of production in 2025. The second phase of the 2028 phase will be completed and put into operation. The first phase of the Guizhou project will also be put into trial operation by the end of next year, and the second and third phases will be completed and put into operation one after another during the implementation period. By establishing a special incentive mechanism, the company uses business performance and construction goals as important performance indicators for the core team, which will help promote the implementation of project construction measures.
Adjust profit forecasts to maintain a “buy” rating. Currently, the pesticide boom has recovered, and at the same time, the company issued a special incentive plan to guarantee the implementation of the project. We expect to achieve revenue of 71.4/91.2/10.53 billion yuan in 2024-26 (previously 9.666/12.38 billion yuan, with an increase of 10.53 billion yuan in 2026), net profit of 4.8/8.7/1.15 billion yuan (previously $17.5/2.33 billion, an increase of 1.15 billion yuan in 2026), corresponding PE of 14X/8X/6X, maintaining a “buy” rating.
Risk warning: pesticide prices are declining, and project progress falls short of expectations