Incident 1: The company released its 2023 annual report. During the reporting period, the company achieved operating income of 4.398 billion yuan, a year-on-year decrease of 3.01%, and realized net profit of 473 million yuan to mother, an increase of 2.87% over the previous year. In Q4, the company achieved revenue of 691 million yuan, down 5.64% year on year and 33.81% month on month; realized net profit of 31 million yuan, up 5.31% year on year and 72.20% month on month.

Incident 2: The company released its 2024 quarterly report. During the reporting period, the company achieved operating income of 1,147 billion yuan, a year-on-year decrease of 6.70% and a year-on-month increase of 66.02%; realized net profit to mother of 91 million yuan, a year-on-year decrease of 40.37% and an increase of 192.87%.

The company's volume increase and price decline performance increased slightly year-on-year in '23, and the 24Q1 performance improved month-on-month. In '23, the company's pesticide sales increased but prices fell sharply, leading to a slight decline in operating income. However, the profitability of the company's prothiazol products is relatively good, and the increase in sales share boosted the overall gross profit margin, and this foreign exchange earnings increased the company's performance. In '23, the company achieved revenue of 20.91, 22.01, and 0.48 billion yuan for pesticide formulations, pesticide raw materials and intermediates, and fertilizers, respectively, with year-on-year decreases of 6.75%, 0.24%, and 8.06%, respectively. In terms of sales, the company achieved sales volumes of 5.52 and 0.41 million tons of pesticides and fertilizers in '23, respectively, with year-on-year changes of +17.60% and -29.18%, respectively. In terms of gross margin, the gross margins of the company's pesticide formulations, pesticide raw materials and intermediates, and fertilizers in '23 were 20.47%, 40.41%, and 35.21%, respectively, with year-on-year changes of -3.34, +11.11, and +1.90pct, respectively. In 24Q1, the company's pesticides and fertilizers achieved revenue of 11.27 million yuan and 0.17 billion yuan respectively, with year-on-year changes of -6.69% and +28.30% respectively.

New pesticide production capacity is progressing steadily, and the integrated strategy of formulations, original drugs and intermediates is being deepened. On the basis of the existing original drugs imidacloprid, imidacloprid, metaviramil and pyrazole, the company entered trial production of second-generation nicotinic insecticides, thiamethoxam and thiamethoxamine in June '20, the prothioconazole original drug project entered trial production. In June '22, the insecticides butyl ether urea, bromopronil, and the biocicides phenyl ether metacyclazole were put into trial production. In December '22, Shandong Haillier built a new drug called prothiazol propyrazole. The project entered trial production, thereby further deepening the integration strategy and beneficially weakening the cyclical fluctuations of the original drug risk.

By the end of '23, the company had a pesticide production capacity of 88,700 tons/year. In terms of production capacity, the 20,000 ton agrochemical formulation and fertilizer manufacturing project of Qingdao Odis Biotechnology Co., Ltd. and the 50,000 ton agrochemical preparation and fertilizer manufacturing project are being implemented. The former is expected to be completed in 24, and the latter is expected to be completed in 27; the second phase of the Qingdao Hengning Biotechnology Co., Ltd. project began construction in '22, and a number of projects are expected to be completed in '24.

Profit forecast, valuation and rating: Due to the declining trend in the pesticide industry, prices of pesticide products continue to fall. We lowered the company's profit forecast for 24-25 and added a profit forecast for 26 years. The company's net profit to mother for 24-26 is 4.50 (down 50.7%) /5.55 (down 49.9%)/726 million yuan, respectively. With the orderly development of the company's Hengning project, the company still has good potential for development and maintains a “gain” rating.

Risk warning: Product and raw material prices fluctuate, capacity building falls short of expectations, and downstream demand falls short of expectations.