Market sentiment in the agrochemical and silicone sectors declined, and the company's net profit for the first quarter of 2024 was under pressure. Xingfa Group released the “Report for the First Quarter of 2024”. In the first quarter, the company achieved operating income of 6.888 billion yuan, an increase of 4.82% over the previous year; net profit to mother was 382 million yuan, a decrease of 15.07% over the previous year. The year-on-year decline in the company's net profit in the first quarter was mainly affected by the decline in market sentiment in the company's agrochemical and silicone sectors. The sales volume of the company's glyphosate and silicone products in the first quarter of 2024 was 58,200 tons and 51,600 tons respectively, up 2.85 and 0.73 million tons, respectively, but sales prices decreased by 34.75% and 15.30%, respectively.
In the first quarter of 2024, the company's gross sales margin was 14.54%, down 1.58 pcts year-on-year.
I am optimistic that the volume and price of glyphosate will rise sharply during the peak demand season. Since April, we have observed a narrow rise in the price of glyphosate. As of April 27, the market price of glyphosate in East China was 26,200 yuan/ton, up 700 yuan/ton from 25,500 yuan/ton at the end of March, an increase of 2.75%. China's glyphosate products are mainly used for export. We believe that the global pesticide industry is currently at the end of this round of storage cycle. China's glyphosate export data has continued to improve since the fourth quarter of last year, and the peak seasonal demand season overseas in previous years is expected to be reflected again this year. We judge that demand for glyphosate in North America will decline somewhat after May. Demand for glyphosate procurement is expected to continue to pick up during the same period when South America enters the preparation period before spring farming. Considering that South America is the main producer of crops in the world and is also the main region where glyphosate is used, we are optimistic that the volume and price of the domestic glyphosate industry will rise sharply from May to July.
The 2024 employee stock ownership plan was announced, demonstrating confidence in long-term development. The company announced the 2024 employee stock ownership plan (draft). The scope of personnel includes no more than 1,500 people, including the company's directors, supervisors, and core technical (business) executives, etc., and the total capital of the employee stock ownership plan was no more than 360 million yuan when the shareholding plan was established. The introduction of the company's employee stock ownership plan will help the company attract and retain talents and demonstrate confidence in the company's long-term development.
Many projects in the growth sector are progressing steadily, and we are optimistic about the company's long-term growth. In 2023, the company successfully put into operation several projects in the new energy materials and new materials sectors, and will start contributing to profits after production capacity gradually climbs this year.
In terms of construction capacity, the Houping phosphate ore beneficiation and pipeline transportation project, the Yidu Xingfa wet phosphoric acid refining technology transformation project, and the Hubei Xingrui Liquid Glue (Phase I) project are progressing at an accelerated pace, which will further enhance the company's development momentum after completion. In the agrochemical sector, the subsidiary Hubei Taisheng Chemical's L-glyphosate raw materials and formulation project and Xingchen Technology Co., Ltd.'s 2,4-drop project EIA announcements were announced one after another. The company is expected to gradually expand its product layout in the agrochemical sector and continue to expand its influence in the agrochemical industry through accumulation in the glyphosate field.
Risk warning: Product prices fluctuate greatly, downstream demand falls short of expectations; progress of new projects falls short of expectations, etc.
Investment advice: Maintain a “buy” rating. According to the company's quarterly report, we maintain the company's 2024-2026 profit forecast. The company's net profit for 2024-2026 is estimated to be 18.57/21.60/2,446 billion yuan, with a year-on-year growth rate of +34.7%/16.3%/13.2%; diluted EPS is 1.67/1.94/2.20 yuan. The PE corresponding to the current stock price is 12.8/11.0/9.7x, maintaining a “buy” rating.