In 2020, the leading pesticide company Yingtai Biotech went public on the New OTC Market Select Level. It only took 43 days from application to meeting, setting a new record for the fastest listing of a domestic company. In addition, due to the strict registration system in the pesticide industry, the moat formed by Yingtai Biotechnology's more than 400 product registration certificates and the double blessing of excellent performance have made it highly favored in the capital market. The online issuance received 540,000 investor subscriptions. Set a new popularity record for the featured tier.
However, "debut is the peak". After was listed on the New OTC Market and was listed on the New OTC Market, Yingtai Biotech's stock price almost "stood still". On November 15, 2021, after the company successfully moved from the selected layer to Beijing Stock Exchange , the stock price even All the way down, the market value has shrunk by nearly 33.8% from its highest point. It was not until the market's style recently switched to the plant protection sector that the company's stock price rebounded slightly.
Figure 1: Yingtai Biotech’s stock price performance Source: wind
So, is Yingtai Biotech’s pesticide business a good business? What are the fundamentals of Yingtai Biotechnology? We will find the answer for you below.
Market position: Domestic leader in generic generic drugs
From the perspective of the value chain of pesticide production, products in the pesticide industry chain from upstream to downstream can be mainly divided into intermediates, technical materials, preparations, etc.
The upstream intermediate is a key substance in the preparation of the original drug. Although the original drug is the final product containing active ingredients, it cannot be directly used in agricultural production. It needs to be compounded and processed to form the preparation . can be used for agriculture.
Pesticides protected by patents can be divided into innovative drugs and generic drugs. The difference is that the former has independent intellectual property rights and patents and has strong R&D attributes; the latter mainly imitates innovative drugs that have expired, but has weaker R&D attributes.
Figure 2: Pesticide industry industrial chain Source: Yingtai Biotech Prospectus
The protagonist of this article, Yingtai Biotech, is mainly engaged in the production of non-patented generic original drugs. Its main product original drugs cover herbicides, insecticides and fungicides. Big category.
In 2021, Yingtai Biotech achieved revenue of 7.354 billion yuan and net profit of 457 million yuan, with year-on-year growth of 18.1% and 45.3% respectively. During the same period, its sales were slightly higher than that of another major pesticide leader, Leer Chemical.
In the first quarter of 2022, the company achieved revenue of 2.253 billion yuan, a year-on-year increase of 33.5%, and net profit of 265 million yuan, a year-on-year increase of 187.4%. Pesticide prices have risen sharply since Q3 last year, which is the core driving force behind the company's performance growth in Q1 this year.
Figure 3: Yingtai Biotech’s revenue and profit from 2018 to 2022 Source: Wind, 36kr compiled
Generic original drug companies are struggling to survive
The demand for pesticides mainly depends on downstream agriculture. In the long term, due to the impact of crops on The demand for pesticides is relatively rigid, and human demand for food is increasing day by day. The demand curve of pesticides shows an overall upward trend. In the short term, pesticide demand is related to food prices, and food prices will experience marginal changes due to factors such as climate, pests and diseases. Therefore, pesticides are a typical cyclical industry.
Figure 4: Global pesticide market size and growth rate (100 million U.S. dollars) Source: Syngenta prospectus, compiled by 36Kr
In the past two years, food prices have soared due to factors such as the epidemic, international relations, and trade protection, and pesticides have The prosperity of the industry has increased significantly. During the business cycle, rising pesticide prices are almost the core driver of performance growth for all pesticide companies this year.
Although the general trend of the pesticide industry is upward, and the industry is currently booming, domestic pesticide production companies are "surviving in the cracks." From the perspective of the competition landscape, overseas creative giants monopolize nearly 80% of the global pesticide market share by controlling the research and development of innovative original drugs and the sales channels of terminal preparations.
Domestic generic pesticide companies, on the one hand, are constrained by high research and development barriers for innovative pesticides, and on the other hand, by the lack of overseas registration and sales channels. Most of them can only get involved in the production of generic original drugs, and their market share is extremely low.
Not only that, because the added value of innovative drugs is significantly higher than that of generic drugs, and preparations rely on their brand and channel advantages, their profit margins are significantly higher than those of original drugs.Therefore, in the pesticide value chain, technical research and development and preparation sales occupy the two ends with the highest profit margins. The profit margin of generic technical drugs is the lowest, accounting for only 15% of the entire industry chain.
Figure 5: “Smile Curve” of the Pesticide Value Chain Source: Sinolink Securities
Therefore, as the leader of domestic generic generic drugs, Intech Biotech’s profitability is relatively weak, and its gross profit margin level is the same as that of Andao, which also makes generic drugs. Compared with the crop protection business of Syngenta, the international agrochemical giant, it is obviously far behind. In 2021, Yingtai Biotech's gross profit margin and net profit margin are only 20.2% and 6.2% respectively.
Figure 6: Comparison of gross profit margins of Yingtai Biotechnology and its comparable companies Source: Wind, 36 Krypton Compilation
The current business structure is mainly based on generic original drugs, the profit margin is not high, and there are widespread pollution problems in the pesticide industry. It also further increases the cost burden of generic drug companies such as Intech Biotech.
The waste water, waste gas and waste residue generated during the production process of pesticides will cause certain damage to the environment. In recent years, my country's environmental protection policies have become stricter, putting the entire chemical industry, including pesticides, under pressure. On the production side, the environmental protection standards of the pesticide industry are constantly improving; on the product side, pesticide registration costs continue to rise, and highly toxic and high-risk pesticides are being phased out at an accelerated pace.
Since 2018, Yancheng Nanfang, a wholly-owned subsidiary of Yingtai Biotechnology, and Jilongda, a holding company, have been shut down one after another due to environmental protection issues, causing the company's revenue growth in 2018 and 2019 to decline by 33 and 15 percentage points respectively year-on-year. . So far, Yancheng Southern and Gironda have still not been able to resume production, and the company has accrued asset impairment losses of 117 million yuan for the two companies in 2021.
In addition, from 2017 to 2019, the company received a total of 28 administrative penalties from environmental protection, safety supervision and other competent authorities, with a total fine of 2.5294 million yuan.
Affected by the closure of delivery rooms and supervision fines, the green transformation of agrochemical companies driven by stricter environmental protection policies has become a general trend. To this end, Yingtai Biotech had to invest heavily in upgrading its production lines.
As of the end of 2021, three of Yingtai Biotech's four important projects under construction are related to environmental protection (respectively, the Gironda transformation project, the environmental protection improvement and transformation project, the transformation and upgrading of pesticide original drug products, and the comprehensive recovery and utilization project of by-product phenols) , the total budget expenditure reached 800 million yuan, accounting for 11% of the revenue for the same period.
Competition is based on differentiation
Since the varieties involved in the generic drug business are not very profitable and the barriers to competition are not high, the company's competitive strategy is based on differentiation, that is, the company does not produce bulk pesticides at all, but concentrates on the production of small varieties. For pesticides, we mainly focus on the advantages of small varieties and mostly good competition. For example, the company’s flagship product, fentrifen, has a market share of less than 1% in the herbicide market. Before 2017, there were very few domestic manufacturers of similar products.
However, since 2017, the number of domestic companies holding licenses for benzotrione has surged from 3 to 34, including many international giants such as Bayer and Syngenta. Compared with them, Yingtai Biotech lacks competitive advantages in terms of brand and channels, and its product sales are also declining year by year.
Figure 7: Sales volume of triazine products from 2017 to 2019 Source: Prospectus, compiled by 36Kr
From this point of view, there are few participants in the production of small varieties of pesticides at the beginning, and the company’s differentiated competitive strategy can enjoy the first Take advantage. However, the threshold for generic pesticides is low. As latecomers join, the industry matures and competition intensifies, and the company's living space will be gradually squeezed.
In order to weaken the impact of the decline in sales of a single variety on the company's overall performance, Yingtai Biotech has created a product matrix of more than 100 types, hoping to maximize its occupation of markets beyond the control of agrochemical giants by continuously increasing the profit window. However, although this model can be effective, it also hides certain business risks.
First of all, due to their high bargaining power, downstream customers mainly use credit sales as payment methods, which limits the company's cash flow to a great extent.In 2021, the company's accounts receivable are 1.48 billion yuan, while the advance receipts are only 0.06 billion yuan. The resulting core profit realization rate is only 0.77. The core of Yangnong Chemical, which is also the leader in generic original drugs The profit realization rate reached 1.06.
Secondly, low bargaining power will also greatly reduce the company's operating efficiency. In recent years, the company's production capacity utilization rate and production and sales rate of different categories have fluctuated greatly. From a horizontal comparison, in 2021, the company achieved an inventory turnover rate of 3.99X, which is still far behind Yangnong Chemical's 5.2X.
's weak ability to collect money and low operating efficiency have become existing additional risks for the company. How to improve operating efficiency on the basis of expanding business scale is a pain point that the company urgently needs to solve.
Figure 8: The company’s production, sales and capacity utilization rate from 2017 to 2021. Source: Company prospectus. 36Kr compiled
Is Yingtai Biotechnology still worth investing in?
In 2021, Yingtai Biotech's asset-liability ratio is as high as 59.5%, which is relatively high among comparable companies. During the same period, 's current ratio and quick ratio were only 0.85X and 0.97X respectively, reflecting the company's lack of liquidity and asset liquidity, which in turn affected 's short-term solvency , and its asset health was relatively poor.
From a structural perspective, the company's accounts receivable account for a relatively large proportion of current assets, accounting for 27.8% of current assets in 2022Q1. It can be seen that the problems of relatively high accounts receivable and long account periods that are common among domestic manufacturing companies also occur in Yingtai Biotechnology. Due to the uncertainty of the collection of accounts receivable, the company's real Liquidity is actually lower than book value.
Figure 9: Asset quality related situation of Yingtai Biotech and its comparable companies in 2022Q1 Source: wind
In terms of liabilities, in 2022Q1, the company's interest-bearing liabilities totaled 5.364 billion yuan. Structurally, the ratio of short-term debt to long-term debt soared from 1.19X in 2018 to 10.52X in 2022Q1, and the scale of short-term debt reached 3.646 billion yuan in the same period. This is mainly because the company's short-term debt has grown rapidly, the short-term debt repayment pressure has soared, and the company's credit problems have begun to appear.
Figure 10: 2018-2022Q1 Yingtai Biotech’s interest-bearing liabilities and structure Source: Wind, 36 Krypton compiled
From the perspective of debt interest payment ability, in 2021, the coverage ratio of EBITDA to the company’s interest and debt is only 6.56X , 0.29X, which is far lower than the level of comparable companies, reflecting the company's extremely poor ability to protect debt with the company's current cash flow from operating activities, and the interest expenses also put great pressure on the company's cash flow.
Figure 11: Debt interest protection status of Yingtai Biotech and its comparable companies in 2021 Source: wind
From an investment perspective, credit issues are the company’s biggest negative at present, mainly reflected in the insufficient liquidity of current assets, and The debt maturity structure is unreasonable, resulting in huge debt repayment pressure this year. In addition, there are problems with the ability of operating activities to protect interest-bearing debts, and interest expenses have taken up a lot of net profit space.
From the perspective of growth, and companies are engaged in low profitability in the production of generic original drugs, and the relatively low technical threshold has affected the effect of product differentiation strategy , and the Matthew effect is obvious in the agricultural industry , as the market reshuffles, the company's potential market space will also diminish at the margin. For agrochemical companies, the tightening of environmental protection policies cannot be ignored. Possible environmental emergencies in the future may affect investment expectations .
This year is a good year for food. As pesticide prices rise, the prosperity of the pesticide industry has improved significantly. Investors have given high premiums to A share agrochemical leaders such as Yangnong Chemical and Leer Chemical. But for Yingtai Biotechnology, credit risk has always been a major constraint on valuation restoration. It is of practical significance to discuss whether the company's growth and business strategies are effective only after the credit risk is relieved.
Figure 12: PE (LYR) situation of Yingtai Biotech and its comparable companies Source: wind
* Note: (1) Short-term debt = short-term borrowing + trading financial liabilities + notes payable + due within one year Non-current liabilities ; (2) Long-term debt = long-term borrowings + bonds payable
Figure 13: 36氪 Finance
* Disclaimer:
The content of this article only represents the author's opinion.
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