Report guide

The two main investment lines recommended in the medium to long term in the food sector are: food industrialization and new business growth, α. Epu Co., Ltd. is in line with these two main investment lines. As a food ingredients manufacturer, it can provide brands with high-quality and high-volume products through production expansion and technology upgrades; the new e-cigarette oil and food ingredients (industrial chocolate and jam) business provides impetus for subsequent endogenous growth, which is expected to continue to exceed expectations.

Key points of investment

Aipu Co., Ltd.: A leading fragrance company, steadily increasing its share of the food ingredients business. The company's main business is flavoring and fragrance, which occupies a leading position in the flavor and fragrance segment. The acquisition of Hangzhou Tianshun and Zhejiang Biou in 16 and 18 respectively entered the field of industrial chocolate and fruit products, helping the company become a leader in providing comprehensive composite product solutions. In 2020, the company's revenue reached 2,668 million yuan, an increase of 8% over the previous year, and the net profit of the mother was 170 million yuan, an increase of 12% over the previous year.

Exceeded expectations 1: Relying on the existing tobacco flavor business, Nugget's e-cigarette oil, fragrance business is expected to exceed expectations. The market believes that the company's fragrance business is growing steadily, and the tobacco flavor business accounts for a relatively small share and does not contribute much.

We believe that Aipu Co., Ltd.'s tobacco flavor business has resources and technical advantages. It began developing a highly profitable e-cigarette oil business at the end of the year 21, and is expected to exceed expectations in the future.

1) The e-cigarette industry is growing rapidly, and the atomized smoke oil business has broad prospects, driving the rapid growth of the tobacco flavor industry. The tobacco flavor industry was 7.82 billion yuan in 2020. It is estimated that the industry will reach 18 billion yuan in 2025, and CAGR will reach about 20% in 5 years.

2) It has the advantage of customer resources: Currently, Aipu Co., Ltd.'s tobacco flavor business is around 150 million yuan. In terms of customer resources: Mainly traditional cigarette flavor products. Cooperating customers include China Tobacco Hubei, Yunnan, Sichuan and Chongqing, Henan, Shanghai cigarettes, etc. The brands include Yuxi, Yunyan, Hongta Mountain, Zhonghua, Shuangxi, etc.

2) It has technical advantages: The company has been deeply involved in the fragrance and fragrance business for many years, maintained technical cooperation with Shanghai Tobacco on tobacco flavors, developed 200-300 types of tobacco flavors, and more than 10 varieties entered the China Tobacco Reserve. It has technical advantages. Currently, the company's e-cigarette flavor business product reserve has basically been completed.

Due to the high gross margin of tobacco flavors, it has basically remained above 60% +, which is far higher than the gross margin level of the company's traditional business. With the launch of e-cigarette smoke oil products next year, it is expected that the share of the tobacco flavor business will continue to increase, driving a continuous increase in the profitability of the entire fragrance business.

Exceeded expectations 2: The food ingredients business was accompanied by the release of production capacity, and the sharp rise in volume and price became a new driving force for performance. The market believes that after the chocolate and jam business expanded production capacity, there were insufficient orders, and the contribution to subsequent performance was limited. We believe that the two businesses are currently in short supply. With the increase in yield and product and customer structure upgrades, the contribution of food ingredients to subsequent performance is expected to exceed expectations.

1) Industrial chocolate: Production capacity will increase by 20,000 tons per year over the next 3 years, and the share of pure fat chocolate is expected to continue to increase, driving an increase in overall business profitability.

Status: In 2020, the industrial chocolate business revenue was 320 million yuan (+34.5%), the design capacity was 48,000 tons, and the actual production capacity was about 38,000 tons. The main customers are leading well-known companies such as Erie, Hershey, Nestle, Meiji, and Moniz.

Volume: Production capacity of 20,000 tons will be released every year for the next three years. At that time, it will have a design production capacity of close to 100,000 to 110,000 tons. Currently, the chocolate production capacity is 38,000 tons, and it is planned to increase production capacity by 70,000 tons. It is estimated that 20,000 tons will be released every year, making it the industrial chocolate factory with the largest production capacity in China in '21.

Price: Product restructuring promotes continuous price increases. Currently, the ratio of pure fat to fat replacement is 1:9. As demand from end customers increases, demand for pure fat will continue to rise. The latest production lines of Aipu Co., Ltd. are all pure fat chocolate production lines, which are fully capable of meeting customer needs. The increase in the proportion of pure fat will drive the profitability of the overall business.

Orders: Orders are sufficient, supply exceeds demand. According to the company's current customers who have become qualified suppliers of the brand, the annual demand for chocolate production capacity is 200,000 to 250,000 tons, which can fully cover the subsequent release of production capacity.

Currently, the net interest rate of the chocolate business is around 5%. With the increase in scale effect brought about by the release of production capacity and the upgrading of customer and product structures, it is expected that the net interest rate will reach a level of 10% or more under steady conditions.

2) Fruit products: Production capacity will increase by 1-15,000 tons per year over the next three years. The customer and product structure will continue to be optimized, and yield will continue to increase, driving the improvement of overall business profitability.

Status: The jam business achieved revenue of 109 million yuan (+76%) in 2020. In terms of production capacity, Zhejiang Biou currently has a production capacity of 12,000 tons. The main customers are leading well-known enterprises such as Mengniu, Guangming, and Yili.

Volume: Production capacity will continue to be released over the next three years. Currently, the production capacity of jam is 12,000 tons, and it is planned to add 50,000 tons (design production capacity) production capacity. The next three years are expected to release 1-15,000 tons of production capacity per year.

Price: Increased yield and product restructuring enhance overall profitability. The production capacity of Europe, especially the production capacity of new buildings, is mainly high-end jam products with fruit, which are more expensive. Judging from the yield ratio, compared to European subsidiaries in the past, the yield rate was not high, mainly due to equipment and technical adjustments. Currently, the company's yield ratio has risen to more than 80%, and gross margin has increased to more than 20%. With subsequent increases in yield and product structure adjustments, the profitability of the company's overall jam products will continue to increase.

Orders: Currently, the company has sufficient orders, and overall production capacity is in short supply. The stock volume of jam products that customers intended to order in 21 years is close to 140,000 tons, far exceeding the current production capacity of Europe; the resource advantages of major customers guarantee stable demand for Apple's jams. At the same time, the company has now also begun to supply 2C-end jam products (branded) to Hema. The overall profitability is far higher than that of the original customers, and will continue to contribute to increased performance in the future.

We expect the company's net profit (unconsolidated) of jam products to reach 2-3 million yuan in 2021, turning a loss into a profit. With the increase in yield rate and the upgrading of customers and product structures, we expect net interest rates to reach the level of 10%-15% under steady conditions.

Profit forecasting and valuation

We expect the company's revenue from 2021-2023 to be 32.32/41.14/50.39 billion yuan respectively, with year-on-year increases of 21.1%, 27.3% and 22.5% respectively; realized net profit to the mother was 2.01/271/332 million respectively. From this, it is estimated that the company's EPS in 2021-2023 will be 0.63/0.85/1.04 yuan respectively, and the corresponding PE will be 24.63/18.30/14.95 times, respectively. According to the industry's comparable average valuation, we gave Aipu Co., Ltd. 30-35 times the PE in 2022, corresponding to the target market value of 8 to 9 billion yuan. There is still room for more than 35% of the corresponding current price. The first coverage allows “buying”

Ratings, key recommendations.

Risk warning: Food safety risks and consumer preferences have changed greatly, and new business development falls short of expectations