CHANGQING AGROCHEMICAL(002391)：1H22 RESULTS IN LINE WITH MARKET EXPECTATIONS;WATCH PROFITABILITY BOOST FROM YICHANG PRODUCTION BASE

　　1H22 results in line with our expectations
Changqing Agrochemical announced its 1H22 results: Revenue grew 15.5% YoY to Rmb2.13bn, attributable net profit rose 23.8% YoY to Rmb202mn, and recurring attributable net profit increased 28.6% YoY to Rmb202mn in 1H22, in line with our expectations. Specifically, revenue from herbicide, insecticide, and fungicide segments rose 29.5%, 6.8%, and 0.7% YoY to Rmb983mn, Rmb883mn, and Rmb212mn, with gross margins at 16.14% (+2.65ppt YoY), 24.74% (+1.39ppt YoY) and 17.88% (+2.11ppt YoY). We attribute the firm’s revenue growth in 1H22 to rising sales volume and prices of its main products.
　　In 2Q22, the firm’s revenue grew 9.6% YoY to Rmb1.22bn, hitting a quarterly new high since its IPO. Attributable net profit rose 14.4% YoY to Rmb122mn, second only to the 2Q19 level (Rmb124mn) since its IPO.
　　Trends to watch
　　Gross margin likely to rebound. Gross margins of the firm’s herbicide, insecticide, and fungicide products in 1H22 were still slightly below its historical averages, mainly due to high global commodity prices and rising raw material costs. Considering the recent decline in global commodity prices, we expect the gross margin of the firm’s products to recover in 2H22, boosting its earnings.
　　Prices of agrochemical products to remain high. The futures prices of agricultural products declined following a period of increases in 1H22, but were still high by historical standards. Farmers’ high willingness to consume boosted demand for agrochemical products. We think that the global agrochemical industry is still in an up-cycle. Meanwhile, European agrochemical companies are facing uncertainties from tightening natural gas supply. We expect the global production capacity of some agrochemical products to remain tight, and agrochemicals prices to remain high amid robust demand.
　　Yichang production base to contribute incremental earnings. The firm’s 2,000t/yr 2,6-diisopropylaniline, 2,000t/yr cyhalothrin, and 600t/yr fipronil capacity has already come online. Its 3,000t/yr thiamethoxam project has entered the debugging phase, and the firm plans to make it operational in 4Q22. Its 1,000t/yr bifenthrin and 10,000t/yr S-metolachlor projects have started equipment installation. We expect new agrochemical technical material capacity to enrich the firm’s product portfolio. We also believe that adding supporting capacity for some of the firm’s agrochemical intermediates will further improve its product competitiveness. Overall, we expect these projects in Yichang to enhance the firm’s profitability and boost medium-and long-term growth as they come online.
　　Financials and valuation
　　We leave our 2022 and 2023 earnings forecasts unchanged, estimating that the firm’s attributable net profit at Rmb434mn in 2022 and Rmb540mn in 2023. The stock is trading at 11.6x 2022e and 9.3x 2023e P/E. We maintain OUTPERFORM and our TP of Rmb9.90 (14.8x 2022e and 11.9x 2023e P/E), offering 27.6% upside.
　　Risks
　　Lower-than-expected agrochemical product prices; progress of new projects disappoints.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。