Incident 1: The company released its 2023 annual report. During the reporting period, the company achieved operating income of 5,086 billion yuan, a year-on-year decrease of 39.08%, and realized net profit of 283 million yuan to mother, a year-on-year decrease of 84.66%. In Q4, the company achieved revenue of 1,483 billion yuan, up 18.73% year on year and 59.49% month on month; realized net profit to mother of 0.26 million yuan, down 83.03% year on year and 57.95% month on month.
Incident 2: The company released its 2024 quarterly report. During the reporting period, the company achieved operating income of 1,585 billion yuan, up 17.18% year on year and 6.87% month on month; realized net profit of 82 million yuan, down 33.49% year on year and 211.37% month on month.
The sharp drop in the volume and price of the company's pesticide products in '23 put pressure on performance, and Q1 performance improved month-on-month in '24. In '23, sales prices of the company's pesticides and chemical products fell, and sales volume declined, leading to a year-on-year decline in revenue. In '23, the company achieved revenue of 23.71, 5.42, 4.60, and 416 million yuan for herbicides, insecticides, chlor-alkali, and flame retardants (phosphorous), respectively, with year-on-year changes of -54.9%, -12.6%, -16.4%, and +47.3%, respectively. In terms of sales, the four achieved sales volume of 7.18, 2.00, 52.03, and 46,600 tons respectively in '23, with year-on-year changes of -23.5%, +0.4%, +11.7%, and +56.5%, respectively.
In terms of price, the sales prices of the four in '23 were 3.30, 2.71, 0.09, and 0.89,000 yuan/ton, respectively, down 41.1%, 13.0%, 25.1%, and 5.9% year-on-year respectively. In Q1 '24, sales of the company's main products increased year on year, but prices still declined year on year. In terms of gross margin, the company's gross sales margin was 13.43% in '23, down 18.6pct year on year, and 14.45% in Q1 '24, down 4.0pct year on year.
The second phase of the flame retardant project was completed as scheduled, steadily improving the capacity utilization rate of existing products. By the end of '23, the company had production capacity of 7, 1.5, 4.6, 3, 1, 0.5, and 0.2 million tons/year for glyphosate, amide series products, flame retardant TCPP, flame retardant TCPP, flame retardant BDP, diazinephosphorus, and (refined) isopropylmethamine. The company's flame retardant phase II project (including 50,000 tons/year TCPP production capacity device, 50,000 tons/year BDP production capacity device, and supporting 25,000 tons/year phosphorus oxychloride production capacity device) was completed in 23 years and is currently in the trial production stage. In '23, the company expanded product sales to increase plant capacity utilization and reduce production costs. The overall capacity utilization rate of production equipment increased compared to '22. In addition, the company added nearly 40 overseas customers for TCPP and other products, achieving full production and sales.
The company released the 2024-2028 equity incentive plan, demonstrating the company's confidence in long-term development. In order to further establish and improve the company's medium- and long-term incentive and restraint mechanism, fully mobilize the cohesion, enthusiasm and initiative of the company's core team and key employees, and jointly focus on the company's long-term development and promote the steady improvement of the company's performance. According to relevant regulations, in line with the promotion and implementation of many major strategic projects such as the company's second base and three bases, and the current actual situation such as intense competition and market slump in the agrochemical industry, the company formulated an incentive plan for the 2024-2028 incentive plan. To extract special incentives, it is necessary to meet the company's weighted average return on net assets for the year of 24-28 > 10%, and 26 The net profit for -28 years must be greater than the cumulative value of net profit after deduction for the corresponding year calculated at an annual growth rate of 15% based on 2023. In addition, the company's key projects for 24-28 must proceed according to the plan and meet the schedule requirements. The total amount of incentive rewards withdrawn during the implementation period of the incentive plan should not exceed 300 million yuan.
Profit forecast, valuation and ratings: Due to falling prices of pesticide raw materials such as glyphosate, the company's performance in '23 was under pressure. Since the price of pesticide raw materials is still low, we lowered our 24-25 profit forecast and added a profit forecast for 26 years. The company's net profit for 24-26 is estimated to be 3.52 (down 59.2%)/5.15 (down 48.0%)/624 million yuan, respectively. With the gradual elimination of global pesticide stocks, demand for pesticide raw materials is expected to gradually improve, and the company's profitability will gradually recover. At the same time, the company actively lays out new profit growth points such as flame retardants, and is expected to continue to gain strength and maintain the company's “gain” rating.
Risk warning: There is a risk that production capacity implementation progress falls short of expectations, raw material prices fluctuate, and downstream demand falls short of expectations.