The company released its 2024 mid-year report: During the reporting period, the company achieved revenue of 1.203 billion yuan (YoY -16%), net profit attributable to mother 0.043 billion yuan (YoY -75%), and net profit not attributable to mother of 0.043 billion yuan (YoY -78%). Among them, in the 24Q2 single quarter, the company achieved revenue of 0.749 billion yuan (YoY +10%, QoQ +65%), net profit to mother 0.053 billion yuan (YoY -34%, QoQ +634%), net profit not attributable to mother 0.053 billion yuan (YoY -52%, QoQ +661%), and significant improvement in single-quarter results. 24Q2's gross sales margin was 21.33%, with year-on-month changes of -2.73 pct and +9.50pct, net margin of 7.40%, and -4.28 pct and +9.71 pct year-on-month, respectively, with a significant increase in profitability. In addition, 24Q2 calculated asset impairment losses and credit impairment losses totaling about 0.015 billion yuan.

Sales at home and abroad recovered significantly in 24Q2. In particular, domestic revenue increased rapidly, and performance improved markedly in the single quarter. According to the company's 2024 mid-year report, during the reporting period, the company's original drug business achieved revenue of 0.901 billion yuan (YoY -9%), gross profit margin 19.09% (YoY 7.19pct); the formulation business achieved revenue of 0.137 billion yuan (YoY +43%), gross profit margin 24.73% (YoY+1.35pct); the intermediates business achieved revenue of 0.061 billion yuan (YoY -73%), gross profit margin of 1.04% (YOY-28.13pct); trade business Achieved revenue of 0.093 billion yuan (YoY -14%) and gross profit margin of 7.35% (YOY-6.29pct). By region, during the reporting period, the company's overseas revenue was 0.672 billion yuan (YoY -40%), gross profit margin 25.04% (YoY 6.02pct); domestic revenue was 0.532 billion yuan (YoY +73%), and gross profit margin was 8.54% (YoY+3.14pct).

24Q2's single-quarter performance improved markedly. We believe that the main reasons are: 1) the company focuses on small but beautiful new pesticides, and demand for storage and procurement is recovering faster; 2) Brazil is an important global agrochemical market, and the company is currently less involved in this market; 3) the company is increasing the promotion of new products domestically to further open up domestic sales in line with the price strategy; 4) seasonal sales in the formulation business are more obvious.

The construction of the three major production bases is progressing in an orderly manner to inject growth momentum, and new innovative products are poised to develop potential for growth. Construction of the company's Huaibei base began in 2021. The first batch of production workshops for lichococcus and propyne fluoroxamine has begun normal production. Production workshops for the innovative pharmaceutical products genoxazole glycyrrhizamide and benzoxazolone have begun construction, and projects such as isoxazolone have also been planned. According to the company's announcement, the production workshop for thiacloxamide and cyanofloxacloxide at the Nanjing base will be put into operation in 2022, and the production plants for pyrazole and difluorosulfonamide at the Huai'an base will be put into operation at the end of 2022 and the beginning of 2023, respectively. In addition, the Huai'an base is also planning chlorobenzamide and oxazolacloxamide projects. As of the 2024 mid-year report, the company's fixed assets were 2.013 billion yuan, and projects under construction were 0.314 billion yuan. As the construction of the company's three major production bases progresses in an orderly manner, in particular the continuous production capacity investment at the Huaibei base, it will support the company's continued growth in the next few years. At the same time, the company continues to innovate. Dozens of new pesticide candidates have now been discovered, and many innovative products are ready to go in the R&D pipeline. Among them, the novel green rice field herbicide FG001 has completed registration tests, the novel green herbicide FG009 has already begun registration-related tests, and the novel green fungicide FG201 will soon begin registration-related tests.

Investment analysis opinion: Considering the current industry competition situation, we believe that product prices will remain fluctuating at the bottom, and the 24Q1 company's performance is still at a loss. The company's 2024-2026 net profit forecast was lowered to 0.16, 0.265, and 0.379 billion yuan (original values 0.241, 0.335, and 0.445 billion yuan). The current market values correspond to PE of 16, 10, and 7X, respectively. According to Wind's expectations, it is comparable to the 2024 average of companies Yangnong Chemical, Limin Co., Ltd., and Basmey PE is 18X, maintaining an “overweight” rating.

Risk warning: 1) The progress of the new project fell short of expectations; 2) the price of the product fell sharply; 3) the price of raw materials rose sharply; 4) The company received a regulatory letter from the Shenzhen Stock Exchange on April 26, 2024, and the disclosure of information was inaccurate and incomplete.