Matters:
Yangnong Chemical released its report for the first quarter of 2024. In the first quarter of 2024, the company achieved revenue of 3.176 billion yuan, -29.43% year-on-year, realized net profit of 429 million yuan, or -43.11% year-on-year, and realized net profit without return to mother of 427 million yuan, or -40.22% year-on-year.
Commentary:
Performance was under pressure at the bottom of the cycle, reducing costs and increasing efficiency to improve operations. Judging from operating data, in the first quarter of 2024, the company's original pharmaceuticals achieved sales volume of 1,724 million yuan, and achieved sales volume of 25,000 tons, -10.69% year over year, achieving an average price of 691,000 yuan/ton, or -32.78%; the company's formulation achieved sales of 861 million yuan, -13.30% year over year, achieving sales volume of 15,000 tons, -21.30% year on year, achieving an average price of 57,500 yuan/ton, +10.16% year over year. During the dewarehousing cycle, the company's sales volume declined and the price of original drugs fell. This has put pressure on performance. However, in this quarter, the company adopted a series of cost reduction and efficiency measures. Management expenses were optimized by 59 million yuan compared to the same period last year, relieving performance pressure to a certain extent. Furthermore, the smooth progress of cost reduction and efficiency will help the company achieve higher operating efficiency over a longer cycle.
Inventory removal is nearing its end, and inflation expectations spread, which is expected to help repair the pesticide cycle. In the first quarter of 2024, the price of the original drug continued the downward trend of 2023. According to data from Zhongnong Lihua, the average prices of products such as glyphosate, biphenthrin, kung futhrin, and nitrocadone in Yangnong Chemical products in this quarter were 2.59, 14.23, 11.23, and 100,000 yuan/ton, respectively, 40.11%/-9.17%, -37.56%/-7.21%, -35.64%/-8.90%, -14.35%/-1.69%. As of April 21, 2024, the above 4 products Prices are 2.62, 13.70, 10.70, and 100,000 yuan/ton, respectively, in the 13.08%, 0, 0, and 0 quantiles since September 2015. 24H1, global pesticide storage is nearing its end, and re-inflation is gradually becoming the agreed expectation of the market. Energy and metal prices have clearly risen. As inflation spreads, the increase in agricultural product prices is lagging behind in time. If 24H2 further inflation spreads to agricultural products, the increase in prices will also have a positive feedback on pesticide demand. Under the influence of the completion of inventory removal and the spread of re-inflation, the pesticide cycle is expected to recover, and the company is expected to fully benefit as a leader in the domestic pesticide industry
The second phase of the Youjia Phase IV has entered the cashout period, and the Youchuang project continues to grow. In November 2023, the fourth phase of the Youjia Phase II project was commissioned and quickly achieved production results. 2024 is expected to contribute to increased performance. In addition, the first phase of Youchuang completed the capping of 37 buildings in November to achieve the transition from outdoor to indoor. By the end of 2023, the project progress was 22%, which is expected to continue the company's growth. Furthermore, in 2024, the company expects the amount of related transactions sold to Sinochem Systems to be 5.459 billion yuan, +85.66% over the same period last year, which will provide a strong guarantee for the digestion of the company's new project capacity.
Investment advice: We are firmly optimistic about the long-term development of Yangnong Chemical, a leading pesticide company. Under the protection of Syngenta and the company's own endogenous innovation ability, it is expected that the company's performance will show strong resilience. As pesticide prices are still falling, we lowered the company's profit forecast. We expect the company's net profit to be 14.16/16.81/1.949 billion yuan in 2024-2026 (previous value was 17.09/20.83/23.18 billion). Based on the comparable company's PE and the company's own situation, we gave the company 20x P/E in 2024, with a target price of 69.60 yuan/share, maintaining a “strong” rating.
Risk warning: pesticide prices continue to decline; pesticide storage falls short of expectations; project construction falls short of expectations;