Event: the company released its semi-annual report of 2021, with operating income of 1.777 billion yuan in the first half of the year, an increase of 10.48% over the same period last year, and a net profit of 507 million yuan, an increase of 2.43% over the same period last year. 479 million yuan was deducted from non-net profit, an increase of 6.31% over the same period last year.

The overall performance achieved steady growth in the first half of the year and came under pressure in the second quarter. 21H1 achieved revenue of 1.777 billion yuan and net profit of 507 million yuan, of which revenue in the second quarter was 876 million yuan, an increase of 8.38% over the same period last year, and net profit of 207 million yuan, a decrease of 25.64% over the same period last year. It is expected that this is mainly due to the rise in raw material prices and freight charges. The revenue in the first quarter was 901 million yuan, up 12.6% from the same period last year, and the net profit was 300 million yuan, up 38.37% from the same period last year. In terms of profitability, 21H1 gross profit margin was 52.84%, down 1.11pcts from the same period last year, including gross profit margin of 56.23% in the first quarter, 49.35% in the second quarter, and a higher decline in the second quarter. In terms of period expenses, the rate of sales expenses was 6.79%, down 1.85 pcts from the same period last year; the rate of management expenses was 11.51%, an increase of 1.44pcts over the same period last year; and management expenses were 170 million yuan, an increase of 32.44% over the same period last year, mainly due to the combined effects of new subsidiaries and increases in social security, rental and depreciation fees. The financial expense rate was 1.78%, an increase of 0.92pct over the same period last year, and the financial expense was 31.65 million yuan, an increase of 128.08% over the same period last year, mainly due to the increase in exchange losses.

The contribution of coenzyme Q10 increased, the development momentum of nutrition and health food was good, and the revenue and gross profit margin of vitamin products decreased compared with the same period last year. In terms of products, in the first half of 21, the revenue of vitamin A series products reached 339 million yuan, a decrease of 9.97% over the same period last year, a decrease of 67.81% of gross profit margin, and a decrease of 9.54pcts over the same period last year. The decline in revenue and gross profit margin is mainly due to the combined effects of the decline in vitamin prices and the rise in raw material costs. The revenue of coenzyme Q10 series products reached 453 million yuan, an increase of 43.92% over the same period last year, and the gross profit margin decreased by 78.05% over the same period last year. The price and sales volume of coenzyme Q10 increased over the same period last year. The slight decline in gross profit margin is expected to be mainly due to the increase in the cost of raw materials. Nutrition and health food achieved revenue of 863 million yuan, an increase of 4.07% over the same period last year, and a gross profit margin of 35.19%, which increased 0.49pct.

In the future, the company's performance growth will be two-wheel drive, one is the landing of new raw material projects, the expansion of production capacity; the other is to increase the promotion of nutrition and health care brands, speed up channel construction, and the volume of terminal products is expected to be expanded.

The company's products are mainly divided into two categories: nutrition and health food raw materials and nutrition and health food terminal products, adopting the double main business mode of "manufacturing + brand operation", which is the leading enterprise of A-share nutrition and health whole industry chain. In terms of the new project, "annual production of 800 tons of vitamin An oil and 200 tons of vitamin D3 oil"

The announcement of the commissioning of the project has been disclosed on August 26, 2021; the "coenzyme reconstruction and expansion project with an annual output of 500t" has been completed and put into production, and its NMN raw material products have passed and obtained the GRAS (recognized safe use substance) self-certification certificate related to the FDA safety review in the United States; the company is actively developing the market of vitamin K2 raw material products; 200t food grade, cosmetic grade and pharmaceutical grade "hyaluronic acid"

The raw material project is in the stage of environmental assessment. In terms of brand construction, the first is to speed up the construction of e-commerce and new retail channels. The company attaches importance to the channel construction of the four major brand matrices in China, focusing on the construction of e-commerce and new retail channels. On the basis of the full coverage of the mainstream cross-border e-commerce channels in China, the company has established and developed 57 distribution customers and 214 stores in China, and expanded the cooperation of 17 duty-free stores in Hainan. The second is to strengthen the domestic promotion of core brands, with Doctor's Best as the focus of brand construction, to create the first brand image of Doctor's Best (Dortpex) NMN and coenzyme Q10 in the whole market, to take phenomenal items as the brand core to drive full-category sales, to activate Doctor's Best (Dortpex) in domestic health products sales business, to consolidate the brand position. The company has signed a contract with brand star spokesmen, sponsored popular dramas, and made full use of live streaming, Mini Program and other social platforms to initially realize multi-dimensional brand marketing, with more than 70 million brand exposures and more than 2 million social media interactions. At the same time, according to the data of business staff, Doctor's Best won the champion of single-day sales for many times in NMN category, coenzyme Q10 category and vitamin D category. From January to June of 2021, the domestic sales of the company's nutrition and health care terminal products increased by 50.94% compared with the same period last year. In terms of new products, the company attaches importance to technological upgrading and new product research and development. During the reporting period, Doctor's Best launched 9 new formula products, including high absorption zinc, coenzyme Q10 fudge, D3 fudge, lutein fudge and a variety of NMN series, while Zipfizz launched 3 new products, including energy chewing tablets, joint health chewing tablets and probiotic sticks. At the same time, the early launch of NMN health products in the United States has come to an end, and the first whey protein + NMN product is about to be put on the shelves. The company is preparing to introduce overseas best-selling functional beverage brand Zipfizz into domestic sales.

Investment suggestion: Jindawei is one of the major global vitamin A suppliers, coenzyme Q10 market share is expected to be more than 60%, health products have the whole industry chain, the strategy is optimistic about the development of NMN. At the same time, relying on the advantages of raw materials and technology to distribute the field of medicine and beauty, it is expected to create a new engine of growth. The company will continue the dual main business model of "manufacturing + brand operation" in the future. It is estimated that the company's EPS will be 1.83,2.24,2.66 yuan in 2021-2023, and the corresponding PE will be 20.7x, 17.0x and 14.3x respectively.

Rating.

Risk hints: market expansion is less than expected, downstream demand is lower than expected, product prices have fallen sharply, raw material prices have fluctuated sharply, environmental protection risks, production safety risks, and the impact of domestic industry regulatory policies on the company's operation. NMN products account for a very low proportion of the company's sales and do not have a significant impact on the company's current performance. The effectiveness of the company's NMN products has not been evaluated by FDA and is not used to diagnose, treat, cure or prevent any disease.