英国、江苏基地亏损拖累业绩。从子公司情况看，公司英国子公司Lianhetech Holdco Limited 2023 实现营业收入5.84 亿元，净利润亏损6.76 亿元。子公司江苏联化2023 实现营业收入14.29 亿元，净利润亏损8339 万元。针对农化周期下行部分基地持续亏损的困境，公司进一步优化组织架构及内部成本，我们认为，1Q24 亏损或有所收窄，随着农药渠道库存缓解及降本措施进一步落实，公司英国、江苏基地有望逐步减亏。同时，植保产品呈现专利期内产品研发门槛高而非专利期内产品竞争极为激烈，公司植保产品竞争格局相对较优，海外客户粘性强，植保业务长期向好。The results for the full year of 2023 fell short of our expectations. 1Q24 turned a loss into profit and achieved operating income of 6.44 billion yuan (YoY -18.10%) in 2023, net profit attributable to shareholders of listed companies of -465 million yuan (YoY -166.76%), after deducting non-net profit of 354 million yuan (YoY -169.7%). The company's gross margin for the full year of 2023 was 18.9% (YOY-6.6pcts), pharmaceutical/plant protection/functional chemicals/other industrial products revenue was 14.82/42.43/1.89/496 million yuan, YoY +1.01%/-26.74%/-14.68%/+32.25%, gross margin was 34.82%/14.32%/15.5%/25.75%, YoY+1.17/-10.59/-5.28/+3.65pcts, respectively. The results for the full year of 2023 fell short of our expectations, mainly due to: 1) The plant protection sector cycle is declining, and product prices and profit levels have declined significantly. 2) The British subsidiary Lianhetech Holdco Limited accrued fixed asset impairment losses. For the full year of 2023, the company accrued a total of 292 million yuan in asset impairment reserves.
The company achieved operating income of 1,466 billion yuan (YoY -25.1%, QoQ +2.9%), and net profit attributable to shareholders of listed companies was 2.69 million yuan (YoY -94.0%, QoQ turned loss into profit), after deducting non-net profit of 11.42 million yuan (YoY -73.2%, QoQ turned loss into profit). The company turned a loss into a profit in 1Q24. We believe that as demand for plant protection products picks up and the UK base gradually reduces losses, the company is expected to reverse its difficult situation.
Development trends
Losses at the UK and Jiangsu bases dragged down performance. Looking at the subsidiary situation, the company's British subsidiary Lianhetech Holdco Limited achieved operating income of 584 million yuan and net profit loss of 676 million yuan in 2023. The subsidiary Jiangsu Lianhua achieved operating income of 1,429 billion yuan and a net profit loss of 83.39 million yuan in 2023. In response to the dilemma of continued losses at some bases in the downward agrochemical cycle, the company further optimized its organizational structure and internal costs. We believe that 1Q24 losses may have narrowed. With pesticide channel inventory mitigation and further implementation of cost reduction measures, the company's UK and Jiangsu bases are expected to gradually reduce losses. At the same time, plant protection products showed a high product development threshold during the patent period, but product competition during the patent period was extremely fierce. The competitive pattern for the company's plant protection products was relatively excellent, overseas customers were highly sticky, and the plant protection business was improving for a long time.
Growth in the pharmaceutical sector can be expected. In 2023, the company has completed or is implementing a total of 20 verification projects, of which 3 are API projects. The number of commercialization stage/clinical phase III/other clinical stage products in 2023 was 19/31/62 (YoY+1/-8/-5), respectively; revenue of 10.41/3.75/ 0.66 million yuan (YoY+1.3/+20.9/ -49.0%) was achieved, respectively. We believe that the global CDMO market continues to grow, and the long-term growth of the company's pharmaceutical business will not change.
Profit forecasting and valuation
The cycle of the plant protection industry is declining, and some of the company's bases need to reduce losses. We lowered our net profit for 2024 by 71% to 204 million yuan, and introduced a new net profit of 340 million yuan for 2025. The current stock price corresponds to 2024/2025 24.9/14.9xPE. Taking into account the adjustment of profit forecasts and the long-term growth of the company's plant protection and pharmaceutical CDMO business, we lowered our target price by 40% to 7.65 yuan corresponding to 34.8/20.7xPE in 2024/2025, maintaining a rating that outperforms the industry. There is room for 39.1% upward compared to the current stock price.
risks
The development of pharmaceutical intermediates fell short of expectations, and prices of pesticide intermediates fell sharply.
