What happened: the company released its semi-annual report of 2021, with revenue of 11.176 billion yuan in the first half of 2021, an increase of 28.17% over the same period last year, and a net profit of 451 million yuan, an increase of 5.29% over the same period last year. In the second quarter, revenue reached 6.949 billion yuan, an increase of 64.41% over the previous year and a year-on-year increase of 17.49%. The net profit of returning to the mother was 250 million yuan, up 24.39% from the previous year and down 15.42% from the same period last year.

Seize the opportunity of transformation and upgrading of the domestic sugar industry, expand sugar refining capacity to lay the foundation for sustainable profit growth companies as the main channel of domestic sugar imports, but also the main sugar import traders, in recent years, with the development trend of the domestic sugar industry, also continue to promote their own transformation and upgrading, so that the industrial field is wider, the added value is higher, and the industrial chain is longer. Combined with the description of the company's business model in the 2021 semi-annual report, we try to split the company's revenue and profit structure. we believe that in terms of revenue structure in the first half of 2021, sugar trade still makes the main contribution to the first largest revenue, followed by sugar refining, then home-grown sugar, and finally tomatoes. From the perspective of profit structure, sugar refining contributes the first major profit, followed by sugar trade, then self-produced sugar, and finally tomatoes. We believe that the reason for the difference between revenue and profit structure may come from the company's continuous increase in sugar refining. Refined sugar, as a sugar product processed from raw sugar by "two-step method", its quality is higher than that of white sugar directly produced by sugarcane by "one-step method", so it has higher added value. As of the semi-annual report of 2021, the company has a total sugar refining capacity of 1.9 million tons per year (including 200000 tons under construction). We believe that with the transformation and upgrading of the domestic sugar industry, the company's capacity and resource advantages in high-quality refined sugar will gradually be transformed into performance, laying the foundation for sustainable profit growth.

It is expected that the gap between domestic supply and demand will continue to increase in the second half of 2021, and domestic and foreign sugar prices will continue to rise in the first half of 2021. International raw sugar futures prices have risen from 9.37 cents / lb to 20.23 cents / lb, with a maximum increase of 116%. Domestic white sugar futures prices have risen from 5199 yuan / ton to 5723 yuan / ton, with the largest increase of 15%. We judge that the price of internal sugar shows the current trend, or it is related to the progress of inventory consumption of imported raw sugar. According to the company's semi-annual report, the overall upward trend of international sugar prices is due to the reduction of production in major sugar-producing countries and the continuous rise in ethanol prices, while the domestic sugar beet planting area has been reduced by the comparative advantage of competitive crops. Domestic sugar production is expected to decline slightly this year, and the gap between supply and demand tends to increase. Thus it can be seen that as the inventory consumption enters the stage of supply falling short of demand, the degree of domestic linkage with international prices is expected to increase, and the price of internal sugar is expected to enter the stage of rapid growth, which will also bring greater profit flexibility for the company on the basis of the current business.

Profit forecast & investment advice: on the basis of continuous optimization of fundamentals, the beneficiary domestic sugar gap continues to need to be replenished by imported sugar, and the upward sugar price will bring good flexibility to the company's performance. It is estimated that from 2021 to 2023, the company will achieve revenue of 218.29 million yuan, net profit of 9.46 billion yuan and net profit of 12.48 billion yuan, corresponding to 0.58 billion yuan per share of EPS 0.44 pound. Maintain a "buy" rating.

Risk hints: project construction progress is not as expected, policy change risk, sugar price fluctuation risk, exchange rate change risk, raw material supply risk