Results for 2023 and 1Q24 fell short of our expectations
Placo announced 2023 and 1Q24 results: The company achieved revenue of $12.5/235 million in 2023/1Q24, +1.84%/-23.27% year over year, achieved net profit attributable to mother of 175/027 million yuan, +3.99%/-57.36% year over year, and realized net profit without return to mother of 1.54 billion yuan/-56.1% year on year. Results for '23 and 1Q24 fell short of our expectations, mainly due to sluggish downstream farming markets, impact on vaccine and drug demand, and 4Q23 credit impairment losses.
Development trends
The livestock medicine boom is under pressure, and the poultry sector is growing steadily. 1) Vaccines for pigs: 2023/1Q24 achieved revenue of 434/0.75 billion yuan, respectively. We believe that sales of swine fever vaccines etc. were pressured mainly by low pig prices. The main single products such as round branch dual and diarrhea vaccines continued to grow for 23 years, and the revenue and share of Top 30 Group customers increased year-on-year; 2) Poultry vaccines and antibodies: 2023/1Q24 achieved revenue of 4.16/0.92 billion yuan, +10.2%/+7.53%, maintaining overall steady growth; 3) Chemicals: 2023/1Q24 achieved revenue of 3.79/054 million yuan, +10.14%/-52.8% year-on-year. The decline in 1Q revenue was mainly due to reduced demand for disinfectants; 4) Other revenue (vaccines for ruminants, functional health products, technology licensing or transfer) achieved revenue of 13.88 million yuan/12.57 million yuan, respectively, in 2023/1Q24, which was -56.8%/+389.0% year-on-year, respectively.
Gross margin rebounded in 1Q24, and profitability needed to be repaired. 1) Gross profit margin: 2023/1Q24 The company's overall gross margin was 59.8%/62.7%, -1.7ppt/+5.2ppt, with the main reason for the decline in 23 was the chemical business gross margin -2.42ppt year; 2) Expense side: 23-year sales expense ratio -1.7ppt, mainly due to reduced marketing expenses; management fee ratio 1Q24 year-on-year +9.2ppt, mainly affected by the transformation of the Nanjing production base. In addition, the company accrued credit impairment losses of 29.53 million yuan in 4Q23. Under the combined influence, 2023/1Q24 net profit margins were +0.3pp/ -9.3ppt to 13.9%/11.6% year-on-year, respectively.
Procyclical performance flexibility is expected to be unleashed, and large single products will open up room for growth. 1) Industry level: We believe that during the upward phase of pig prices, income from non-compulsory vaccinations and chemicals is more flexible. The competitiveness of the company's core products, such as the pig circle vaccine, is stable, and we believe that the company is expected to benefit first after the pig price reversal; 2) At the company level: the company uses R&D to drive growth, and subsequently reserves a number of important items such as restructured trivalent avian influenza units, foot-and-mouth disease subunits, and live swine pseudorabies vaccine; at the same time, we believe that if the vaccine is not implemented, the company is expected to take the lead in increasing performance and market share; in addition, the company is actively laying out the pet health insurance sector. Recently, the cat triple vaccine “Meow Yi” has been approved for listing, or increasing the company's medium- to long-term development space.
Profit forecasting and valuation
Based on the fact that the farming economy is still slowly recovering, we lowered our 2024 net profit forecast by 36% to 210 million yuan, and introduced a 25-year forecast of 255 million yuan. The current stock price corresponds to 28/23 times P/E for 2024/25. Based on profit forecast adjustments, the target price was lowered by 27% to 22 yuan, corresponding to 36/30 times P/E in 2024/25, with 28% upside. Maintain outperforming industry ratings.
risks
The aquaculture industry fluctuates; product promotion falls short of expectations; market competition intensifies.