Event: the company released the 2021 China report. In the first half of the year, the revenue was 871 million yuan, down 5.06% from the same period last year; the net profit was 60.4412 million yuan, down 13.05% from the same period last year; and the net profit after deducting non-return was 54.1984 million yuan, an increase of 6.55% over the same period last year. Basic earnings per share is 0.12 yuan. Comments are as follows:

1. The business of substitute resistance is growing rapidly.

In the first half of the year, the revenue from the anti-drug business was 106 million yuan, an increase of 60.98% over the same period last year, continuing the high growth momentum since the second half of 2020. The gross profit margin of the replacement business was 64.14%, 1.66 percentage points higher than the same period last year and 0.06 percentage points higher than the second half of 2020. The continuous increase in gross profit margin is mainly due to the appearance of scale effect and the decrease of cost end after the mass production of the product. In 2020, the company began to build a new Boluo back to the raw material planting base, and the raw materials gradually shifted from market procurement to self-supply. It is expected that with the completion of the base and the increase in the self-financing ratio, the cost end of the substitute product will further sink, which is conducive to the steady increase in gross profit margin.

During the 14th five-year Plan period, the domestic feed ban resistance supervision is stricter, superimposed breeding limit resistance, substitute anti-product market demand is expected to have a larger room for growth. The company's anti-main products Cornus officinalis extract (veterinary drug raw material drug) and Boluo Huisan (veterinary drug preparation) have obtained the national new veterinary drug certificate, and have excellent alternative antibiotic effect, and the advantage of large single product is more obvious. Taking into account the pig cycle factors, downstream demand for replacement products may be affected to a certain extent, we slightly downgrade the growth rate of the business.

2. Other businesses develop steadily

The business of enzyme preparation grew steadily. In the first half of the year, the income of the enzyme preparation business reached 302 million yuan, an increase of 28.7% over the same period The gross profit margin was 46.24%, down 8.12 percentage points from the same period last year. The gross profit was 139 million yuan, an increase of 9.44% over the same period last year.

The API business is back to normal. In the first half of the year, the revenue of APIs was 407 million yuan, down 30.55% from the same period last year. The decline in income was mainly due to a high base in the same period last year. In the first half of 2020, thanks to the impact of COVID-19 's epidemic, the company's revenue increased by 32.54% compared with the same period last year. At present, the API business has basically returned to the pre-epidemic level. The gross profit margin of APIs was 38.2%, an increase of 14.01 percentage points over the same period last year.

Profit forecast

It is estimated that 2021, 2022, and 2023 net profit will be 2.05, 246 and 334 million yuan in 2023. Taking into account the high growth of the replacement business, the company will be given 30 times PE for 22 years, with a target market capitalization of 7.38 billion yuan, which is 50% of the current price and maintains a "buy" rating.

Risk hint

The implementation of the national anti-defense policy is weak, the company's R & D and project construction progress is not as expected, environmental protection shutdown and production restriction, etc.