In the severe and complicated business environment, the domestic agrochemical head company (600486.SH) not only withstood the pressure, but also achieved high growth in business performance.

In the evening of October 24, Yangnong Chemical disclosed its third quarterly report. In the first three quarters, the company achieved operating revenue of about 13.1 billion yuan, an increase of more than 40% year-on-year, and net profit attributable to shareholders of listed companies (referred to as net profit) of more than 1.6 billion yuan, an increase of more than 60% year-on-year.

Such operating results exceeded market expectations. 2020 and the same period in 2021, YNCC’s net profit was down year-on-year. And this year, the epidemic, regional conflicts, the dollar interest rate hike, chemical raw material price increases and other multiple risks overlapping, Yangnong Chemical is also under greater operating pressure.

In the face of the crisis, Yangnong Chemical adopted the strategy of producing more and selling faster, reducing costs and increasing efficiency to resolve the unfavorable factors and create favorable factors, so as to turn the crisis into opportunities.

Backed by Syngenta Group, Yangnong Chemical has formed a series of competitive advantages, including the integration of research, production and marketing, complete industrial chain, and independent research and development advantages. Up to now, Yangnong Chemical is the only Chinese local agrochemical company among the top 10 global agrochemical companies.

Yangnong Chemical has maintained a reasonable growth in R&D investment. In the first three quarters of this year, the company invested 377 million RMB in R&D, which has exceeded the whole year of 2021.

Multiple risks overlapped revenue and net profit still increased high

Yangnong Chemical has delivered a financial report that exceeded market expectations.

According to the third quarterly report, in the first nine months of this year, Yangnong Chemical achieved revenue of 13.102 billion yuan, up 3.860 billion yuan or 41.77% year-on-year, and net profit of 1.638 billion yuan, up 622 million yuan or 61.33% year-on-year. Net profit after non-recurring gains and losses (referred to as net profit after deducting non-recurring gains and losses) was 1.8 billion yuan, an increase of 82.14% year-on-year.

In terms of single-quarter performance, in the first, second and third quarters, the company achieved operating revenues of 5.268 billion yuan, 4.298 billion yuan and 3.537 billion yuan, up 42.08%, 44.47% and 38.21% year-on-year, respectively. The corresponding net profits were RMB904 million, RMB610 million and RMB124 million, representing year-over-year changes of 103.51%, 75.81% and -44.74%. Deducted net profit was 894 million yuan, 689 million yuan and 217 million yuan, a year-on-year change of 93.90%, 123.25% and -0.73%.

In the third quarter, net profit declined more significantly, mainly affected by non-recurring gains and losses.

The income statement shows that in the third quarter, the company’s net income from investments and net income from changes in fair value totaled -71 million yuan, in addition to the company’s asset impairment of 133 million yuan. This was the main reason for the significant drop in net profit in the third quarter. The asset impairment of $133 million was mainly due to the provision for asset impairment on subsidiaries. Excluding these factors, the net profit in the third quarter was probably positive.

Overall, the operating results for the first three quarters of this year were bright. for the same period in 2020 and 2021, the Company achieved net profits of NT$1.023 billion and NT$1.016 billion, down 4.34% and 0.75%, respectively. for the full year in 2020 and 2021, the Company achieved net profits of NT$1.210 billion and NT$1.222 billion, up 3.41% and 1.02%, respectively. The company’s net profit for the first three quarters of this year was RMB 1,210 million and RMB 1,222 million, respectively, an increase of 3.41% and 1.02%. The net profit and net profit after deductions achieved in the first three quarters of this year have exceeded the net profit and net profit after deductions for the two years of 2020 and 2021.

Reviewing the business performance since the listing in 2002, the net profit and net profit after deduction in the first three quarters of this year have exceeded the level of any previous year.

In fact, the first three quarters of this year, the bright results achieved by Yangnong Chemical are not easy to come by. The global economic slowdown, the domestic and international situation is severe and complex, facing a variety of risk challenges such as global epidemics, regional conflicts, and interest rate hikes of the U.S. dollar. Domestically, the epidemic emanated from many places, the logistics and transportation became more difficult, and the price of chemical raw materials increased greatly, which had a significant negative impact on the operation of Yangnong Chemical.

In the face of many difficulties, Yangnong Chemical strives to turn crises into opportunities and seek opportunities in crises. The company precisely seized the favorable opportunities such as the overall strong demand of pesticide market and the high price of some varieties, and adopted the strategy of producing more and consuming faster to reverse the unfavorable situation. In addition, the company also resolved the impact of unfavorable factors through measures such as cost reduction and efficiency increase.

In terms of sales strategy, the Company was flexible and expanded cooperation with third-party customers. For example, it supported key customers to register their products in the United States, Brazil and other markets, and export revenue increased significantly year-on-year. The company’s original drug business through more production and faster sales, sales increased by 38.86% year-on-year.

R&D investment increased by more than RMB 100 million

Faced with many challenges, Yangnong Chemical has adopted cost reduction and efficiency enhancement strategies to cope with them, however, the R&D expenses have not been reduced but increased.

The third quarterly report shows that in the first three quarters of this year, Yangnong Chemical’s R&D investment was 377 million yuan, an increase of 106 million yuan compared with 271 million yuan in the same period last year, an increase of 39.11%. 377 million yuan of R&D investment has exceeded 375 million yuan for the whole year of 2021.

According to the disclosed information, Yangnong Chemical’s R&D investment is all expensed.

Yangtze River Business News reporter found that in recent years, Yangnong Chemical’s R&D investment has continued to grow steadily. 2017 to 2021, the company’s R&D investment was 210 million yuan, 239 million yuan, 334 million yuan, 359 million yuan and 375 million yuan, respectively.

By the end of 2021, the number of R&D personnel invested by Yangnong Chemical was 399, accounting for 12.80% of the total number of employees.

According to Yangnong Chemical, the company is a national key high-tech enterprise, the head of domestic agrochemical listed companies, the core supplier of global pyrethroid prodrugs, and the company is also the only Chinese local enterprise among the top 10 global agrochemical companies.

Yangnong Chemical has at least three outstanding advantages, namely, the advantages of integrated research, production and marketing, the advantages of complete industrial chain, and the advantages of independent research and development. According to the company, it has the leading domestic pesticide research and development capability, the manufacturing capability of many kinds of pesticides and the safety and environmental protection capability, and has its own extensive sales channels and markets for raw materials and formulations. Yangnong is currently the only domestic manufacturer of pyrethroid pesticide industry that starts from basic chemical raw materials, synthesizes intermediates and produces pyrethroids as original drugs. The key intermediates of the company’s pyrethroid products are self-contained and well supported, and the resources are fully utilized. Compared with domestic enterprises in the same industry, it has obvious cost advantages based on the complete industrial chain.

Yangnong has built the only State Key Laboratory of New Pesticide Creation and Development in the domestic pesticide industry and the National Engineering Research Center of Pesticide (Shenyang). The company has developed a number of new pesticide creation varieties, including chlorpyrifos, fluomorphos, acetamiprid and tetrachlorvinphos, which have become the leading products in the domestic market, among which, chlorpyrifos is the first pesticide with sales over 200 million yuan in China. Among them, the insecticide chlorpyrifos is the first pesticide with sales over 200 million yuan. The fungicide fluomorph is the first pesticide product with independent intellectual property rights approved for official registration in China, and acetazoxystrobin is the number one single product of acaricide in China.

It is worth mentioning that pyrethroid, the core product of Yangnong Chemical, ranks first in the pesticide industry in China in terms of variety and scale, and is the single champion product in the national manufacturing industry.

The operation of Yangnong Chemical is relatively sound. In the past 10 years, the company’s comprehensive gross profit margin has been stable at about 25% and net profit margin at about 15%. The company’s assets and liabilities ratio has been below 50% for a long time, and it maintains abundant cash flow. As of the end of September this year, the company had RMB 4.485 billion in cash capital on its books, which corresponds to a total of RMB 973 million in long- and short-term debts, and its existing capital is sufficient to cover its long- and short-term debts.