Issue 9: Yangnong Chemical——Don’t underestimate pesticide manufacturers

1. Business Analysis

(1) Company Business Summary

The company’s main business is the research and development, production and sales of pesticide products. The research and development work is mainly divided into the research and development of original pesticides, the research and development of generic pesticides and the technical improvement of existing production processes. After the acquisition of agricultural research companies during the reporting period, the company's research and development capabilities of original pesticides have been greatly improved. The company's products include pesticides, herbicides, fungicides and other pesticides. Pesticides mainly include pyrethroid products, herbicides include glyphosate and dicamba, and fungicides include fluazinam. , pyraclostrobin and other varieties. The company's sales are divided into technical sales and preparation distribution. After the acquisition of Sinochem Crops during the reporting period, the company showed rapid growth in pesticide preparation sales.

The pesticide industry has strong seasonality. The peak season in the northern hemisphere is mainly in the first half of the year, and the peak season of the technical drug market is earlier than that of the preparation market. The company mainly produces and sells pesticide technical materials, and its customers are mainly downstream preparation processing and sales companies. Therefore, the company's domestic sales peak season is generally the first half of the year.

The pesticide industry is greatly affected by climate conditions. The complex and changeable climate affects the planting of crops, which in turn affects the demand for pesticides. The company strives to enrich the variety of pesticides, balance the pesticide market, and hedge against the adverse effects of climate through multiple varieties and multiple markets.

Pesticides are indispensable means of production in agricultural production. For a long time, pesticides have played an extremely important role in controlling diseases, insect pests and weeds, protecting the safe growth of crops, increasing crop yields, and promoting the sustained and stable development of the national economy. However, the current concentration of the domestic pesticide industry is not high and it is small and scattered. Most of the pesticides produced are low-efficiency and highly toxic pesticides. Coupled with the unscientific use of pesticides, some adverse effects have been produced. For this reason, the Ministry of Agriculture has proposed the goal of achieving zero growth in the use of pesticides and chemical fertilizers by 2020. There will be large room for development of high-efficiency, low-toxic pesticides in the future.

Development potential continues to increase

In 2019, the company regarded mergers and acquisitions integration, project construction, and technological innovation as the three driving wheels to promote development, injecting strong impetus into the company's subsequent development. In terms of mergers and acquisitions, the company completed the acquisition of the equity of Sinochem Crops and Agricultural Research Corporation, which improved the level of integration of research, production and marketing, and further enhanced the company's influence and competitiveness. Subsidiary Youjia Plant Protection has launched the acquisition of Baoye Chemical, which has expanded its development space and will play an important role in hosting more follow-up projects. In terms of project construction, the company completed the administrative approval of Youjia Phase III, laying a solid foundation for accelerating transformation and upgrading. In terms of technological innovation, we have carried out a number of new product research and development and technological improvements, and achieved remarkable results in reducing three waste emissions, improving quality and reducing consumption, and increasing production and efficiency.

(2) The stage of the industry

Basic situation of the pesticide industry

According to the "Pesticide Industry Development Plan (2016-2020)", my country's pesticide industry has undergone After years of development, a relatively complete industrial system has been formed including scientific research and development, technical drug production and preparation processing, raw materials and intermediates. By the end of 2014, there were nearly 2,000 companies with pesticide production qualifications, including technical drug production. There are more than 500 enterprises. At present, the layout of the pesticide industry has become more concentrated, the scale of enterprises has continued to expand, the product structure has become more reasonable, the pesticide export structure has been improved, and technological innovation has achieved certain results. However, there are also some problems in the pesticide industry, mainly due to the small scale of enterprises, weak competitiveness, weak independent innovation capabilities, low level of technical equipment, and product structure that needs further adjustment.

The adjustment and development stage after 2016

On the one hand, the country is optimizing the industrial structure, comprehensively implementing overcapacity reduction, and eliminating backward production capacity in the pesticide industry; on the other hand, it is affected by the national environmental protection policy Due to the impact of tightening regulations, the entire industry has entered a stage of adjustment.

Development trends of the pesticide industry

1. Pesticide management will become increasingly strict. Pesticides are toxic substances that are related to the quality and safety of agricultural products and environmental safety, and are of great concern to the public. Management policies will become more and more complete, industry requirements will become higher and higher, supervision and law enforcement will become more standardized, and penalties for violations will become more severe.

2. The registration threshold is getting higher and higher. There are many, small, and scattered pesticide manufacturing companies, with overcapacity and too many products; product homogeneity is serious, and there are many old products.

Launch a re-evaluation system to re-evaluate products that have been registered for many years according to new standards: eliminate highly toxic and high-risk pesticides; continuously improve and modify residue limit standards; establish a complete pesticide risk assessment and management system.

3. Environmental protection and safety have changed from slogans to real guns. Relevant laws and regulations have become more stringent, and supervision and inspections have become more frequent. Many companies will change production and relocate, and some are facing life or death. The environmental storm will become stronger in the future. It has become the norm for companies whose production is lagging behind and whose environmental pollution emissions do not meet standards to close down.

4. Reducing quantity and increasing efficiency during use will be the norm. Pesticides are used safely and scientifically. Pesticide users are ordinary farmers who have difficulty in accurately mastering pesticide application techniques. Blind use of pesticides and excessive use often occur; pesticide packaging waste disposal; implement a pesticide reduction action plan, promote unified prevention and control, and implement green prevention and control. Promote high-efficiency pesticide application machinery and high-efficiency low-risk pesticides, and encourage pesticide social service organizations and professionals to provide technical services to pesticide users.

5. Agricultural production requires new products and new technologies. With the reduction and aging of the rural labor force and the development of scale and intensification of agricultural production, agricultural production requires new products and technologies that save time, labor, efficiency and safety.

6. The export of pesticide products will definitely continue. my country is a major producer of pesticides in the world, with an export proportion of more than 70%. The “Belt and Road Initiative” and South-South cooperation have brought opportunities for pesticides to go global. More Chinese pesticide companies are registering independently with their own brands in other countries, building factories or offices overseas, and applying for foreign patents. China's pesticides are changing from exporting raw materials and manufacturing for multinational companies to product exports, brand exports, and technology exports.

To effectively control pests and diseases, pesticides are irreplaceable. Pesticide companies must face the challenges faced by the pesticide industry head-on, seize opportunities, assess the situation, accurately position and seek development, transform production methods and eliminate backward production capacity, and follow the path of clean production, green and high-quality development. Speed ??up product upgrading and phase out highly toxic and high-risk pesticides.

There is still room in the international market

The pesticide industry requires one-stop support from upstream and downstream. In a sense, it is an industry with a certain moat. It is not easy for outsiders to enter and weak It is more difficult for small countries and even some big countries to establish a system. In addition, my country is the chairman of the International Codex Alimentarius Pesticide Residue Standards Committee and participates in exchanges with international organizations such as FAO/WHO and OECD. It has a certain say in international rules and can use the multilateral stage to expand cooperation channels with countries in my country's pesticide export target markets. with space.

The general trend of mergers and reorganizations of pesticide companies

Pesticide companies are small, scattered, chaotic, and have weak innovation capabilities. They neither adapt to market rules nor management intentions. The 18th National Congress of the Communist Party of China proposed to give full play to the decisive role of the market in resource allocation and better play the role of the government. The invisible hand of the market is now quietly at work. The visible hand of the government also plays a role by adding new companies to industrial parks, raising barriers to entry, increasing environmental protection facilities and various industrial policies. It is an inevitable trend to become bigger and stronger through mergers and reorganizations.

(3) Industry market size

my country’s pesticide development started late. Since the 1990s, the Chinese government has continuously increased its investment in the pesticide industry in order to improve the self-sufficiency rate of pesticides. After years of development , my country’s pesticide production and market sales show a year-by-year growth trend. At present, my country is the world's largest producer of pesticides. As pesticide companies in developed countries are affected by factors such as environmental protection production costs, pesticide production bases have been moving outwards. However, my country's pesticide companies have strong comprehensive advantages in labor costs and raw material matching, thus Become the main undertaker of production capacity transfer.

The "2020-2026 China Chemical Pesticide Technical Materials Industry Development Model Analysis and Investment Value Forecast Report" released by Zhiyan Consulting shows that since 2017, the national chemical pesticide production has shown a downward trend. The output of chemical pesticides in 2017 was 2.941 million tons, which fell to 2.083 million tons in 2018. In 2019, the output of chemical pesticides stopped falling and increased, with output reaching 2.2539 million tons, a year-on-year increase of 1.4%.

Pesticides play a vital role in improving the production efficiency of agricultural products and ensuring yields in the agricultural production process, and are deeply loved by farmers and agricultural planting companies. From 2010 to 2017, the sales revenue of my country's pesticide industry maintained an overall upward trend.

However, in 2015, affected by national policies, it entered a stage of adjustment and development. Affected by the zero-growth policy for pesticide use, the industry's sales revenue growth rate declined significantly. In 2018, thanks to the development of biopesticides and the increase in product prices, as well as the expansion of demand for pesticides in cash crops such as cotton and infrastructure fields, industry sales revenue was approximately 329 billion yuan. But overall, the sales revenue growth rate of my country's pesticide industry has shown a clear downward trend. It is estimated that the sales revenue of China's agricultural industry in 2020 will be about 330 billion yuan.

(4) Industry competition pattern

my country’s pesticide industry started late and has roughly gone through organochlorine pesticides from the early days of the founding of the People’s Republic of China to the 1980s, organophosphorus pesticides from the 1980s to the early 21st century and the 21st century. There are three development stages of heterocyclic pesticides and biopesticides. After years of development, my country has formed a relatively complete pesticide industry system including scientific research and development, production of raw materials, preparation processing, raw materials and intermediates. From the perspective of revenue scale, my country's pesticide industry enterprises are mainly small and medium-sized enterprises, and the number of enterprises above designated size is relatively small.

The company takes the revitalization of the national pyrethroid industry as its own responsibility, insists on independent innovation, implements the famous brand strategy, and actively promotes the upgrading of my country's pesticide industry structure. Supplementing the diversified product structure, the company has now become a manufacturer with core advantages in the global field of pyrethroids, and the number of pyrethroid product varieties ranks among the top in the world. At present, the company’s hygienic pyrethrins market share in China is about 70%, and its dicamba production capacity ranks among the world’s leaders. Youjia Company was rated as one of the first batch of green factories in the country by the Ministry of Industry and Information Technology.

According to the data rankings of the China Pesticide Industry Association, the company ranked 5th among China’s top 100 pesticide sales companies in 2019 and 3rd in China’s pesticide exports in 2019. Ranked among the top 20 agrochemical companies in the world for five consecutive years. During the reporting period, the company was successively rated as one of the top 100 fine chemical companies in China, the best supplier of AGROW, and the outstanding supplier of raw materials and intermediates in China's pesticide industry.

In 2019, the company deepened cooperation with large-scale customers, strengthened policy publicity after the adjustment of the new pesticide policy, guided small and medium-sized customers to standardize pesticide use, and expanded the sales of external environmental preparations and fly chlorine. Sales of health medicines remained stable and improved, with a year-on-year growth of 9.5%. The company gives full play to its advantages of strong supply guarantee capabilities, fully meets the needs of domestic high-quality customers and potential customers, and increases the sales of pesticide products; it actively expands the market for new products pyraclostrobin and creates new growth points; it continues to deepen its cooperation with Sinochem The comprehensive synergy of crops has promoted a substantial increase in sales of preparations. Domestic pesticide sales throughout the year increased by 6% year-on-year. The company continues to deepen strategic cooperation with agrochemical multinational companies and actively promotes new cooperation on new projects and new products. At the same time, we actively conduct product registration to lay a solid foundation for business expansion. However, affected by the sharp drop in demand for dicamba products, overseas sales for the whole year fell by 5.03% year-on-year.

In 2019, the company ranked among the top ten in China’s pesticide exports and sales (third in exports and fifth in sales), and has been selected into the top 20 agrochemical companies in the world for five consecutive years. It has been rated as one of the top 100 fine chemical companies in China, the best supplier of AGROW, and the outstanding supplier of raw materials and intermediates in China's pesticide industry.

(5) Moat

The company is the largest enterprise in the domestic bionic pesticide industry. The output and operating income of pyrethroid pesticides have always ranked first in the country's similar pesticide industry, and were ranked first in the country's similar pesticide industry. The Pesticide Industry Association rated it as one of the “Top 100 Pesticide Enterprises in China” and one of the Top 10 Pesticide Export Enterprises in China. The project "Development and Application of Green and High-efficiency Pyrethroids" won the China Industry Award, and its subsidiary Youjia Company was rated as one of the first "green factories" in the country by the Ministry of Industry and Information Technology.

1. Advantages of independent research and development

The company insists on taking research and development as the guide and adheres to the technological innovation strategy of combining imitation and innovation. It has successively conquered a number of key pyrethroid technologies and independently developed 72 new products. , including 4 innovative varieties, 11 national key new products, 20 Jiangsu Province high-tech products, and won provincial and ministerial level science and technology awards such as China Industry Award, Jiangsu Science and Technology Progress Award, China Petroleum and Chemical Industry Federation Science and Technology Progress Award, etc. 22 projects, undertaken 21 projects at or above the provincial or ministerial level such as the National Science and Technology Support Plan, 863 Plan, Jiangsu Province Science and Technology Achievements Transformation, etc., and led or participated in the formulation of 6 national standards and 9 industry standards.

As of the end of the reporting period, the company had obtained more than 400 patent authorizations.

The Agricultural Research Company has established the only national key laboratory for the creation and development of new pesticides in the domestic pesticide industry and the National Pesticide Engineering Research Center, and has developed a number of new pesticide varieties, including flumorphin and tetrachloropran. Amide and acetonitrile have become the leading products in the domestic market. The new fungicide flumorphon it created is the first pesticide product with independent intellectual property rights in my country that has been officially registered.

2. Brand advantage

The company's products widely adopt international advanced standards, and the product quality is generally well received by customers. The company's "Moju" brand pyrethroid pesticide has been awarded the title of "Jiangsu Province Famous Brand Product" for many years in a row, and has been awarded the "Most Competitive Brand" by the Ministry of Commerce. The "Moju" and "Youshi" trademarks are both well-known trademarks in China. . "Baozhuo" was awarded the title of "2019'Quality Citrus' Excellent Acaricide"; "Tengshou" became the leading brand in the wheat seed treatment market and won the "2019 Plant Health Product Contribution Award"; 9080 (tetrachlorantraniliprole) ) is included in the "Recommended Drug List for Emergency Control of Spodoptera Frugiperda" by the Ministry of Agriculture and Rural Affairs.

(6) Corporate leadership team

(7) Corporate culture

(8) Challenges, opportunities and risks

In 2020, From the perspective of the domestic economy, the fundamentals of my country's economy, which is stable and improving in the long term, have not changed. At the same time, as our country is still in the critical period of transforming its development model, optimizing its economic structure, and transforming its growth momentum, the impact of the "three-phase superposition" continues to deepen, and the downward pressure on the economy has further increased. From the perspective of the global economy, international economic growth is weak, sources of turmoil and risk points have increased significantly, and coupled with the impact of the spread of the new coronavirus epidemic, market forecasts indicate that 2020 will be the most severe, stressful, and difficult year for the company in recent years. Year. Taking into account the internal and external environment, the company mainly faces the following challenges and opportunities.

Challenges faced:

1. Four major challenges from the outside. The first is the challenge of insufficient external demand. There is insufficient demand in the agrochemical market, and pesticide exports are facing greater challenges; the second is the challenge of downward prices. The price of the company's main profitable varieties has fallen, which has a great impact on performance; the third is the challenge of releasing production capacity. Some mainstream The product market's operating rate is gradually recovering, which will further intensify market competition; The fourth is the challenge of project approval. After the Xiangshui explosion accident on March 21, Jiangsu Province concentrated on the investigation and rectification of hazardous chemicals and issued a safety and environmental protection improvement plan. Under the new situation, It has become more difficult for Jiangsu agrichemical enterprises to apply for project approval.

2. Four major pressures from within. First, large-tonnage varieties of dicamba continue to be in the doldrums and will remain at a market low in 2020; second, some of the company's main profitable varieties are included in the list of 25% tariffs imposed by the United States, which will have a substantial impact on product exports; third, in 2020 The year is a critical stage for the management integration and team integration of "Xinyangnong" after the asset acquisition, and it faces the pressure of comprehensive integration to contribute synergistic value.

Favorable opportunities:

From a macro level, there are four main benefits: First, the country will continue to implement proactive fiscal policies and prudent monetary policies to further reduce corporate financing costs. ; Second, the country will continue to implement the policy of tax reduction and fee reduction to further reduce the costs of electricity, gas, logistics, etc. for enterprises; Third, the country will continue to use innovation as the driving force to support the development of the real economy and strive to create a group of internationally competitive enterprises. Advanced manufacturing clusters, technology-driven enterprises with a certain scale will receive more policy support; Fourth, the country will continue to fight the tough battle against pollution, with the same direction and undiminished intensity, and enterprises with green development capabilities will win more Big market.

From the perspective of the company itself, it has three main advantages: First, compared with the past, Xinyang’s agricultural research, production and marketing integrated system is more complete, which is conducive to winning more say in the new round of competition; second It is because Xinyangnong has become an important member of Sinochem's agricultural sector, which is conducive to winning more development opportunities by relying on the new platform; thirdly, the successful approval of the third phase of Youjia has provided guarantee for the company to fully complete its retreat from the city and into the park, and follow-up projects Progress will inject new impetus into the future development of the enterprise and open up new space.

Possible risks

1. Epidemic risk. The COVID-19 epidemic is currently spreading around the world. Although the domestic epidemic has been brought under control and companies have begun to resume work and production, overseas epidemics are difficult to predict and may have an adverse impact on the supply of raw materials, demand for products, and transportation of goods.

2. Risks of climate anomalies. In recent years, severe weather conditions have occurred frequently around the world, adversely affecting the growth of crops and the demand for pesticides. The company will continue to develop new pesticide varieties to provide full coverage of insecticides, herbicides, and fungicides, and strive to smooth the impact of harsh climate in individual areas.

3. Exchange rate risk. The foreign exchange market fluctuates violently, and there is great uncertainty in the RMB exchange rate. The company currently has a large export business volume and faces certain uncertainties in foreign exchange settlement. The company will strengthen research on international trade and exchange rate policies, reasonably formulate trade terms and settlement methods, and avoid international settlement exchange rate risks to the greatest extent. At the same time, it will strengthen research on the laws of foreign exchange fluctuations, conduct foreign exchange forward settlement business in a timely manner, and lock in exchange rate fluctuations.

4. Market risk. On the one hand, international trade friction continues, and the company's product prices and sales are exposed to market fluctuations. On the other hand, the proportion of export sales is too large, and there is a risk of a high proportion and high dependence on foreign markets. On the one hand, the company will increase the development of the domestic market and strive to maintain a balance between domestic and foreign sales. On the other hand, the company will continue to explore international emerging markets and strive to promote regional balance in global trade.

5. Safety and environmental risks. Most of the raw materials used in the company's production are flammable, explosive, corrosive or toxic substances. The product production process involves high temperature, high pressure and other processes, which have high operational requirements. There are problems caused by imperfect equipment or processes, improper operation, etc. Risk of unexpected safety incidents. The company will further implement the main responsibility for safety and environmental protection, strengthen process management, increase capital investment, adhere to source control, pursue intrinsic safety, continue to carry out clean production transformation, and strive to control safety and environmental protection risks within a reasonable range.

2. Financial report analysis

(1) Look at the total assets to judge the company’s strength and expansion capabilities

It has been expanding rapidly before 2018, but in 2019 there are The shrinkage requires continued observation.

(2) Look at the asset-liability ratio to understand the company's debt repayment risk

If the asset-liability ratio is greater than 40%, and less than 60%, the debt repayment risk is small.

(3) Look at interest-bearing liabilities and quasi-monetary funds to eliminate debt repayment risks

If the difference between quasi-monetary funds and interest-bearing liabilities is greater than 0, there is no debt repayment pressure.

(4) Look at the difference between "receivables in advance" minus "receivables in advance" to understand the company's competitive advantage

If the difference between payables in advance - receivables in advance is greater than 0, the company's competition Strong strength and the ability to "eat from both ends".

(5) Look at accounts receivable and contract assets to understand the company’s product competitiveness

The ratio of (accounts receivable + contract assets) to total assets is greater than 10%. You need to take a look at the accounts receivable.

The age of accounts is basically within 1 year, so it is not a big problem.

The rules for accruing bad debt provisions are relatively strict.

(6) Look at fixed assets to understand the company’s cost of maintaining competitiveness

The ratio of fixed asset projects to total assets is less than 40%, making it an asset-light company. The cost of maintaining continued competitiveness is relatively low.

(7) Look at investment assets to determine the company’s degree of focus

The ratio of investment assets to total assets has been less than 10% in the past two years. It focuses on the main business and is excellent. company.

(8) Look at the inventory to understand the risk of the company’s future performance explosion

Total accounts receivable/assets >5% and total inventory/assets in the last year >15%, required Take a look at the provision for inventory discounts

The company has made such preparations for its major inventories, so the risk of thunderstorms is not high.

(9) Look at goodwill and understand the risk of the company’s future performance exploding

Without goodwill, there is no risk in this item.

(10) Look at operating income to understand the company’s industry status and growth

Operating income growth is unstable.

(11) Look at the gross profit margin to understand the company's product competitiveness and risks

The gross profit margin is less than 40%, which is due to the characteristics of the industry.

(12) Look at the period expense rate to understand the company's cost control ability

If it is greater than 40%, the cost control ability still needs to be improved.

(13) Look at the sales expense ratio to understand the difficulty of selling the company's products

If the sales expense ratio is less than 15%, its products are easier to sell and the sales risk is relatively small.

(14) Look at the main business profit and understand the profitability and profit quality of the company's main business

The main business profit rate is basically greater than 15%, and the main business has strong profitability; The ratio of profit to operating profit is more than 80% most of the time, and the profit quality is high.

(15) Look at the net profit to understand the company’s operating results and value. Net profit mainly depends on the gold content of net profit

In the past three years, the cash content of net profit has been greater than 100%, and it was relatively low in 2015 and 2016.

(16) Look at the net profit attributable to the parent company to understand the company’s overall profitability and sustainability

The return on equity is growing and has been greater than 15% in the past two years, which is relatively good company. The growth rate of net profit attributable to owners of the parent company in the past three years has been greater than 10%, indicating that the company is growing at a rapid rate.

(17) Look at the cash paid for the purchase of fixed assets, intangible assets and other long-term assets to understand the company’s growth potential

Cash paid for purchase and construction and cash flow generated from operating activities With a net ratio between 3% and 60%, the company has greater growth potential and relatively less risk.

(18) Look at the cash paid to distribute dividends, profits or repay interest to understand the company’s cash dividend situation

Cash paid to distribute dividends, profits or repay interest/generated from operating activities The net cash flow ratio is 20% to 70%, and the long-term sustainability of dividends is strong.

3. Valuation

The company’s moat mainly has one item: the cash content of net profit has been less than 100% in 2 of the past 5 years, and the asset-liability ratio has been greater than 40 in the past 3 years. %, the historical average price-to-earnings ratio is 25.51 times, and the reasonable price-to-earnings ratio is 20 times.

The average annual growth rate of net profit in the past five years is 20.79%. To be conservative, the growth rate in the next three years will be 15%. The predicted net profit in 2020 will be about 1.15 billion.

The total share capital is 310 million shares.

Net profit after 3 years is: 1.15 billion*1.15*1.15*1.15=1.749 billion

Reasonable market value after 3 years is: 1.749 billion*20=34.98 billion

The reasonable stock price after 3 years is: 34.98 billion/310 million shares = 112.84 yuan/share

The good price is: 112.84 yuan/share2=56.42 yuan/share

Current price At 152 yuan/share, it is obviously overvalued.

4. Increase and decrease in shareholdings of the top ten tradable shareholders and senior executives