2023 and 1Q24 results fall short of market expectations
The company announced its 2023 results: revenue of 14.631 billion yuan, -32.9%; net profit to mother of 140 million yuan, -95.3% year over year; of these, 4Q23 revenue was 2.34 billion yuan, net profit to mother was -036 million yuan, which turned into a year-on-year loss. The company plans to pay an annual dividend of 0.1 yuan/share. The company also announced 1Q24 results, with revenue +2.4% YoY to 3.97 billion yuan, and net profit to mother +4.2% YoY to 110 million yuan. The company's 4Q23 and 1Q24 performance fell short of market expectations. We think the main reason is that glyphosate and silicone prices continued to fall short of expectations due to industry sentiment.
At the subsidiary level, Xin'an Tianyu, the company's core silicone terminal business, achieved net profit of 110 million yuan in 2023, +16.5% over the same period last year.
Development trends
Glyphosate prices are close to the bottom, but upward elasticity may be limited. The overall price of glyphosate was weak in 1Q24, with an average quarterly price of 25,600 yuan/ton, -8% month-on-month. We believe it was mainly due to some production cuts/discontinuation of production capacity in the early stages, and the demand side's acceptance of high-priced products was relatively low. Looking ahead, although the current glyphosate price/price spread is close to the bottom of history since 2010, and product prices may continue to fall relatively low, considering the current high downstream inventory (as of April 19, glyphosate manufacturers stock 55,000 tons) and weak prices of large agricultural products such as soybeans/corn or continue to inhibit downstream acceptance of high-priced products, we believe that the upward elasticity of glyphosate prices is also limited, and may remain at the bottom throughout the year. In the medium to long term, we expect that the increase in penetration rate of genetically modified crops in regions such as Asia and Africa will drive a recovery in demand for glyphosate.
It will take time for the silicone boom to recover. The average price of silicone in 1Q24 was 15,500 yuan/ton, -11% year-on-year and +8% month-on-month. We believe that the month-on-month increase is mainly due to an increase in the price of industrial silicon on the raw material side. Looking ahead, considering 1) the supply side, we estimate that by the end of 2023, China's silicone production capacity had increased to about 2.7 million tons/year, and there is still a possibility that large-scale production capacity under construction (more than 500,000 tons/year) could be put into operation in 2024; 2) On the demand side, China's domestic consumption of silicone plus export demand increased slightly to about 2.3 million tons year-on-year in 2023. Taking into account the macroeconomic growth situation, we judge that domestic silicone consumption and export demand in 2024 will still have to wait some time for the boom to recover.
Profit forecasting and valuation
Considering that the silicone and glyphosate boom may continue to be under pressure, we lowered our net profit for 2024 by 23% to $832 million, and introduced net profit of $914 million in 2025 for the first time. The current stock price corresponds to a price-earnings ratio of 13.7 times/12.5 times for 2024/2025. Maintaining an outperforming industry rating, we lowered our target price by 16.7% to $10.00, corresponding to 16.2 times the 2024 price-earnings ratio and 14.8 times the 2025 price-earnings ratio, with 18.5% upside compared to the current stock price.
risks
Glyphosate prices continue to decline, putting production safety at risk.