Core views
The decline in product prices combined with high inventory factors. In 2023, the company achieved operating income of 11.485 billion yuan, a year-on-year decrease of 20.58%; realized net profit to mother of 771 million yuan, a year-on-year decrease of 45.44%; and realized deducted non-net profit of 762 million yuan, a year-on-year decrease of 46.23%. In the first quarter of 2024, the company's performance improved. It achieved revenue of 2,693 billion yuan, an increase of 20.59% over the previous year, and achieved net profit of 153 million yuan to mother, a year-on-year decrease of 16.39% and a year-on-year increase of 208.78%.
With the end of inventory removal in various markets, the recovery in demand, and the continuous expansion of overseas registration certificates, performance is expected to continue to recover. At the same time, along with the steady progress of multiple projects, equity incentives enhance employee confidence and benefit the company's competitive strength and medium- to long-term growth space.
occurrences
The company released its 2023 annual report and 2024 quarterly report
In 2023, the company achieved operating income of 11.485 billion yuan, a year-on-year decrease of 20.58%; realized net profit of 771 million yuan, a year-on-year decrease of 45.44%; realized deducted non-net profit of 762 million yuan, a year-on-year decrease of 46.23%. Q1-Q4 revenue was 22.33 billion, 28.10, 34.75, and 2,966 billion yuan, respectively, and net profit attributable to mother was 1.83, 2.42, 2.97, and 49 million yuan, respectively.
In the first quarter of 2024, the company achieved revenue of 2,693 billion yuan, a year-on-year increase of 20.59%, and achieved net profit of 153 million yuan to mother, a year-on-year decrease of 16.39%.
Brief review
2023 results are under pressure, and a gradual recovery is expected in 2024
Since the fourth quarter of 2022, along with the commissioning of new production capacity for pesticide raw materials in China and India, combined with panicky high stocking inventory in various market channels due to poor global supply and logistics in the past two years, market competition has intensified, showing an overall trend of oversupply and demand, and raw drug prices have declined. On December 31, 2023, the Zhongnonglihua Pharmaceutical Price Index reported 80.19 points, down 37.5% from last year. Among the hundreds of products tracked, 92% of the products fell, 8% remained flat, and there were no rising varieties. Prices of large tonnage products such as glyphosate (-48%), glyphosate (-58.00%), enoxadone (-56%), 24D (-45%), chloramphenamide (-45%), prothioconazole (-64%), and pyrimidine (-39%) dropped significantly and all fell to or below historical lows. In 2023, the company's herbicide, insecticide and fungicide revenue was 84.23 billion yuan, 15.44 billion yuan, and 1,375 billion yuan, respectively, of -31.43%, +53.88%, and +72.45% year-on-year respectively. The gross margins were 18.47%, 32.88%, and 22.20%, respectively, -1.27pct, +9.43pct, and -0.25pct year-on-year, respectively. Among them, Model A+B revenue was 7.6 billion yuan, -28.28% YoY, gross profit margin 17.24%, +0.08pct YoY, Model C revenue was 3.884 billion yuan, +0.56% YoY, and gross margin was 28.90%, +0.23pct YoY. The company's sales expenses in 2023 were 433 million yuan, +48.12% year-on-year, mainly due to the increase in overseas employees' remuneration, registration expenses, travel expenses, consulting fees, and promotional products in 2023. Management expenses of $515 million, or +39.43% year-on-year, were mainly due to an increase in overseas employees' remuneration, office expenses, consultation and evaluation, depreciation and amortization in 2023; financial expenses of -37 million yuan were mainly due to a sharp decline in exchange earnings.
In the first quarter of 2024, the company's performance improved. It achieved revenue of 2,693 billion yuan, an increase of 20.59% over the previous year, and achieved net profit of 153 million yuan to mother, a year-on-year decrease of 16.39% and a year-on-year increase of 208.78%. Along with the end of inventory removal and the recovery in demand in various markets, and the orderly and smooth progress of the key tasks in the company's medium-term strategic plan, the company has a solid foundation for continued healthy and stable growth, and the growth momentum is good.
The B-side business guarantees business stability, and the C-side business opens up room for growth. Under the trend of environmental protection and safety, overseas pesticide registration is becoming more difficult, barriers to large-scale overseas registration are being strengthened, and advantages are highlighted. At present, the company has obtained more than 5,400 overseas registrations, rapidly expanding the size of the global registration team, and the number of team members continues to increase. With this, the company has gradually formed an integrated effect, can respond quickly to changes in market demand, and is also expected to accelerate penetration into high-value-added markets such as Europe and the United States. Relying on the advantages of overseas independent registration certificates, the company exports its pharmaceutical products to more than 90 countries around the world, ranking first in domestic pesticide exports to ensure the company's operational stability. Based on this, the company is developing a high-margin ToC model around the world, which is expected to open up new business growth space.
Profit forecast and valuation: The company is expected to achieve net profit of 1,009 billion yuan, 1,284 billion yuan, and 1,470 billion yuan respectively in 2024-2026. The corresponding EPS is 3.62 yuan, 4.61 yuan, and 5.27 yuan, respectively, and the corresponding PE is 15.4X, 12.1X, and 10.6X, respectively.
Risk warning: 1. Production safety risk: Some of the company's products are flammable, explosive, corrosive or toxic substances, and there is a risk of accidents and safety accidents.
2. Risk of policy changes in major pesticide importers: The world's major pesticide importers may adopt more and more strict control measures on the import and use of pesticide products, which will have a certain adverse impact on the product exports of domestic pesticide manufacturers. 3. Impact of exchange rate changes: The export revenue of the company's products accounts for a large share. Most of the export payments for products are priced and settled in US dollars, so changes in exchange rates will have a certain impact on the company's profits. 4. Risk of fluctuation in raw material prices: In addition to some self-production, the raw materials required for production mainly come from domestic procurement. There is a risk that the domestic market supply and price of raw materials will be insufficient or prices will fluctuate greatly.