Description of the event
On the evening of October 30, the company announced its results for the third quarter of 2023. The company achieved operating income of 5.091 billion yuan in the first three quarters of 2023, -23.04%, and net profit of 1,323 billion yuan, or -28.48%; in the 2023 Q3, it achieved revenue of 1,319 billion yuan, -37.57% year-on-year, -28.55%, and net profit of 301 million yuan, -50.49%, and -40.10%.
Prices of main products continued to decline. The company's third-quarter results were under pressure. In Q3 of 2023, the company achieved revenue of 1,319 billion yuan, -37.57%, -28.55% month-on-month, and net profit of 301 million yuan, -50.49% year-on-year, and -40.10% month-on-month. The main reasons are:
① In terms of pesticide raw materials business, since the beginning of 2023, pesticide raw drug prices have declined sharply due to high overseas inventories and macro-factors. The sales volume of major pharmaceutical products of 2023Q3 companies is -7.22% month-on-month, and the average sales price is -26.55% month-on-month. The performance of the pesticide raw drug business declined sharply; ② In terms of pesticide intermediates business, in February 2023, the company's ion membrane caustic soda project was put into operation, which contributed to sales while also diluting prices to a certain extent. 2023Q3's pesticide intermediate product sales volume was +7.90% month-on-month, and the average sales price was -22.96% month-on-month. By product, according to data from Zhongnong Lihua, the average prices of 2023Q3, glyphosate, dioxolone, polymycelin, and methylthiobendron were 32,600 yuan/ton, 39,400 yuan/ton, 39,400 yuan/ton, 39,400 yuan/ton, -48%, -7%, -14%, -14%, +16% month-on-month, -1%, -2%, and -3%, respectively.
Multiple projects promote the continuous improvement of the industrial chain. The company has broad scope for long-term growth. The company is a leading phosphate-gas pesticide enterprise. At the same time, it lays out upstream intermediates for the company's pesticide products such as (neighboring) nitrochlorobenzene and phthalediamine, forming a two-wheel drive pattern for pesticide raw materials and fine chemicals.
In August 2023, the company announced that the “annual output of 40,000 tons of p-aminophenol project” was fully put into operation. The project further consolidated the company's industrial chain, extended the application of upstream and downstream raw materials such as chlor-alkali (neighboring) nitrochlorobenzene, etc., enhanced the competitiveness of the main business, officially opened up the chain sector from “phosgene - fine chemicals - pharmaceutical intermediates”, built a symbiotic ecosystem in the industrial chain, and achieved value upgrading. At the same time, the company continues to enrich the types of pesticide products downstream, and plans to develop high-value or high-application products such as indaclovir, thiazidone, pyrimidine, and oxaxidone. The 3,000-ton cyclozinone expansion project and the 2,500-ton pyrimidine project are expected to be completed one after another by the end of 2023, with an annual output of 1500 tons of oxazinone, and 1,000 tons of indacarb, which is expected to gradually contribute to performance in 2023. In the future, as the company's strategic layout progresses, competitiveness will be further enhanced.
Investment advice
We are optimistic about the cost advantages brought by the company's perfect industrial chain. At the same time, the company is speeding up the deployment of pharmaceutical intermediates and new materials, and high-value-added products are expected to improve the company's overall profit level. The company's net profit for 2023-2025 is estimated to be 1,639 billion yuan, 2,345 billion yuan, and 2,611 billion yuan respectively (the original 2023-2025 forecast values were 23.34, 26.00, and 2,964 billion yuan), with year-on-year growth rates of -29.2%, +43.1%, and +11.3%. The corresponding PE is 9.22, 6.44, and 5.79 times, respectively. Maintain a “buy” rating.
Risk warning
(1) Downstream demand falls short of expectations;
(2) The pace of putting new production capacity into production falls short of expectations;
(3) Market competition risk;
(4) Production safety risks;
(5) Environmental protection risks;
(6) Macroeconomic policy risks.