Introduction to this report:
The pressure on the fourth quarter of 2023 results was mainly due to the increase in sales expenses brought about by the company's contrarian expansion against the backdrop of weakening agrochemical markets, and profit margins in the first quarter were clearly recovered month-on-month.
Key points of investment:
Maintain an “Overweight” rating. Considering that the company will continue to expand its C-side business in 2024, we reduced the 2024-2025 EPS to 3.39 yuan and 4.12 yuan respectively (previously adjusted share capital was 4.59 and 5.46 yuan, respectively), and added the 2026 EPS to 5.31 yuan. In 2024, the average PE of comparable companies was 34.4 times, and the Shenwan Pesticide Index PE was 15.8 times. Using 25.1 times the average value of the two as the target PE, the target price was lowered to 85.13 yuan to maintain the “gain” rating.
The 2023 annual report was slightly below expectations, and the 2024 quarterly report was in line with expectations. The full year of 2023 achieved operating income of 11.485 billion yuan, a year-on-year decrease of 20.58%, and realized net profit to mother of 771 million yuan, a year-on-year decrease of 45.44%. Among them, revenue of 2,966 billion yuan was achieved in the fourth quarter, down 14.66% from the previous quarter. Achieved net profit of 49 million yuan to mother, a year-on-month decrease of 83.35%. In the first quarter of 2024, revenue of 2,693 billion yuan was achieved, down 9.19% from the previous month, and realized net profit of 153 million yuan, up 208.78% from the previous quarter. The overall gross profit margin in 2023 was 21.19% up 0.95 pcts year over year, and the net profit margin was 7.40% down 2.89 pcts year over year. In the first quarter of 2024, gross profit margin of 20.10% increased 3.05 pcts month-on-month, and net profit margin 6.14% increased 3.64 pcts month-on-month.
Inventory levels continue to rise. At the end of 2023, inventory of 3.336 billion yuan increased 13.07% month-on-month and 101.32% year-on-year. The inventory level for the first quarter of 2024 was 3.48 billion yuan, a further increase from the beginning of the year. As overseas demand recovers, inventory digestion is expected to bring about elastic performance.
Overall demand for pesticides will continue to pick up. According to data from the General Administration of Customs, China's pesticide exports increased markedly in the first quarter. The traditional peak procurement season in South America was in the second and third quarters. The rise in glyphosate prices confirmed the continued recovery in overseas pesticide demand, which is expected to continue to recover in the second and third quarters.
Risk warning: pesticide prices continue to fall, project construction progress falls short of expectations