Matters:
The company released its 2023 annual report: it achieved full-year revenue of 5.406 billion yuan, -8.24% year on year, net profit to mother of 403 million yuan, -26.73% year on year, net profit of 279 million yuan after deduction, or -30.26% year on year. In the fourth quarter of a single quarter, we achieved revenue of 1,247 billion yuan, net profit to mother of 6.0941 million yuan, -95.93% year-on-year, net profit of 366.722 million yuan after deduction, and -199.72% year-on-year.
Commentary:
Revenue from the main vaccine and chemical insurance businesses has dropped significantly. In terms of products, vaccine revenue in 2023 was 1.09 billion yuan, -16.77% year on year. Poor downstream farming combined with a sharp contraction in the scale of bird flu vaccine procurement led to a significant decline in revenue; chemical revenue of 1,264 billion yuan, -12.09% year over year, mainly driven by the slump in the API market; feed revenue of 1,026 million yuan, -6.91% year over year; trade revenue of 2,084 billion yuan, -0.51% year on year. By region, domestic revenue was 5.079 billion yuan, -8.22% YoY; foreign revenue was 303 million yuan, -2.86% YoY; by channel, direct sales revenue was 3.357 billion yuan, -7.91% YoY, and distribution revenue was 2.025 billion, or -7.99% YoY.
The gross margin of the main animal insurance business declined, and the gross margin of feed and trade improved. In terms of products, the gross profit margin for vaccines in 2023 was 46.12%, down 2.97 pcts year on year; chemical gross profit margin was 21.47%, down 4.68 pct year on year; feed gross profit margin was 23.55%, up 4.99 pcts year on year; and gross trade margin was 3.42%, up 0.59 pct year on year. By region, the domestic gross profit margin was 19.10%, down 1.36 pct year on year, and the foreign gross profit margin was 26.12%, down 6.84 pct year on year. According to the channel, the gross profit margin of direct sales was 20.18%, down 7.46pct year on year, and the gross profit margin of distribution was 18.37%, down 11.36pct year on year.
The decline in profits was mainly due to large losses at chemical subsidiaries such as Nakamaki Adachi. Looking at the ① vaccine aspect, in terms of vaccines, the poultry seedling subsidiary Qian Yuanhao lost 88.02 million yuan in 2023, affecting net profit attributable to the mother in the report, increasing the year-on-year loss by 21.36 million yuan. The foot-and-mouth disease vaccine subsidiary Zhongpu Biotech lost 15.98 million yuan due to increased competition and poor demand for oral vaccines, etc., reducing the loss by 7.11 million yuan. ② In terms of chemicals, the subsidiary Hubei Anda lost 45.96 million yuan due to the effects of inverted prices of raw materials such as fluorophenicol, etc., and the net profit attributable to the report increased the loss by 50.33 million yuan. In addition, the net profit of Shengli Biopharmaceutical's subsidiary decreased by 34.14 million year-on-year, which had an impact on the net profit attributable to the mother in the statement - 18.78 million. In addition to this, consolidated profits from businesses such as foot-and-mouth disease, conventional livestock, feed, and trade were generally stable year over year.
Industry sentiment is picking up+ the company is actively seeking change. The bottom line of operations has passed, and performance is expected to return to a growth trajectory and maintain a “strong” rating. The year 23 was affected by both shrinking industry demand and adjustments in the company's internal operations. Looking ahead to 24, the downstream boom at the industry level is expected to gradually recover. At the company level, it is expected that Qian Yuanhao will reduce or even reverse losses, the acquisition of Zhongmu in Chengdu will further release chemical production capacity, and further deepen linkages with leading enterprises (the Zhongmu Muyuan Joint Venture is expected to be completed and put into operation in the second half of '24, and the increase in collaboration after Zhongmu Group buys food products) are expected to bring significant improvements to revenue and profits. Furthermore, it is expected that newly launched products such as the feline triple vaccine and bovine nodule vaccine will also contribute to positive increases this year. Taking into account the pace of recovery in industry demand and the pace of adjustment of the company's operations, we adjusted and forecast the company's net profit to mother for 24-25 to be 4.78, 5.96 (previous values: 742, 850 million), and introduced a profit forecast of 710 million for 26 years. Referring to the peer valuation level and the company's historical valuation, PE was given 25 times in 24 years, the target price was adjusted to $11.75, and the “strong push” rating was maintained.
Risk warning: Downstream demand recovery falls short of expectations, competition intensifies, and new product development progress falls short of expectations.