Description of the event

On June 16, 2024, according to data from Zhongnong Lihua, the average price of the company's main product, glyphosate, was 0.056 million yuan/ton, down 0.009 million yuan/ton from the beginning of 2024, a decrease of -14%, and 0.099 million/ton from the beginning of 2023, or -64%.

Prices of main products are at the bottom of history, waiting for the bottom of the pesticide market to pick up. Due to insufficient effective demand in the pesticide market and overcapacity in the industry, product prices continue to decline. As of June 16, 2024, according to data from Zhongnong Lihua, the average price of the company's main product, glyphosate, was 0.056 million/ton, down 0.009 million yuan/ton from the beginning of 2024, a decrease of -14%, and 0.099 million/ton from the beginning of 2023, or -64%. Pesticide demand is rigid. Entering the second half of 2024, as overseas pesticide stocks are gradually cleared, terminal pesticide demand is expected to gradually recover. We expect the price of the company's main products to enter the bottom range.

The biochemical method project is progressing steadily, and leading “Jingcao” companies are preparing to actively deploy essential ammonium phosphine. They continue to break through in process technology in the “essential herb” sector, are in a leading position in the industry, and have prepared enzymatic and biochemical processes for preparing L-glyphosate. The herbicidal activity of glyphosate is twice that of ordinary glyphosate, and the amount applied per mu is only half that of glyphosate, which is in line with the requirements of the national pesticide reduction policy. Currently, the company is progressing in an orderly manner according to the construction plan. The holding subsidiary Lier Biotech has completed the construction and successfully put into operation of the 20,000 tons/year enzymatic glyphosate project. The Jingzhou Sancaitang 10,000 tons/year refined ammonium phosphine project and the Lier Bioserine project are expected to be completed in the second half of this year. At the same time, the company has initiated registration and market layout of glyphosate in many overseas countries, invested a large amount of resources in the registration and development of glyphosate preparations in 5 countries, and is expected to become a leader in the “essential herb” industry in the future.

Multiple projects are progressing in an orderly manner, and I am optimistic about the company's long-term growth

The company has many projects under construction. It has successively developed a series of new products, including zolinoxalate and chloramphenicol, etc., to continuously optimize the company's product structure and increase the company's new profit growth points in the future. The Mianyang and Guang'an bases actively promote process technology progress, deep excavation, cost reduction and efficiency, and fine organization of production to guarantee market demand. At the same time, the holding subsidiary Lier Biotech completed the construction and successfully put into operation of the 20,000 tons/year enzymatic glyphosate project. The Jingzhou Sancaitang 10,000 tons/year refined ammonium glyphosate project and the Lier Bio-hyperserine project are expected to be completed in the second half of this year. Construction of the 11.8 billion yuan green plant protection series project at the Guang'an base has started. After the project is completed and put into operation, it will produce 0.078 million tons of pesticide raw materials and 0.0957 million tons of fine chemical intermediates per year, including 10,000 t/a chlorofluoropyrimidine, 5000t/a chlorofluoropyridinic acid, 50000t/a flame retardant series, and production facilities for supporting intermediate products. The annual output value of the project will exceed 10 billion yuan after delivery. The future will be accompanied by the gradual implementation of production capacity, which will help open up space for the company's long-term growth.

Investment advice

As the price of the company's main product, glyphosate, continues to drop, we lowered our profit forecast for the full year 2024-2025. We expect the company to achieve net profit of 0.576, 0.682, and 0.838 billion yuan (the original forecast was 0.985 and 1.187 billion yuan), respectively, up -4.6%, 18.4%, and 22.9% year-on-year, respectively. The current stock price corresponds to PE 11X, 9X, and 8X times, respectively. Maintain a “buy” rating.

Risk warning

(1) The investment of new production capacity falls short of expectations;

(2) Prices of products and raw materials fluctuate greatly;

(3) The price of glyphosate fell;

(4) Macroeconomic downside risks.