The net profit returned to the mother after deduction of 2022Q1 was 92 million yuan, an increase of 836.58% over the previous year. The company released its report for the first quarter of 2022, achieving total operating income of 879 million yuan during the reporting period, an increase of 27.54% over the previous year; Guimu's net profit of 103 million yuan, an increase of 826.02% over the previous year; net profit after deduction of 902 million yuan, an increase of 836.58% over the same period last year; and basic earnings per share of 0.10 yuan, compared to 0.01 yuan in the same period last year. The increase in performance was mainly due to the gradual release of production capacity in the “Phenol Phase I Project”, the rise in prices of some vitamin and chromium salt products, and the increase in product gross margin.

Vitamin K3: The competitive pattern in the industry is improving, and the acquisition of CISA ensures a stable supply of raw materials. According to Boyahexun, after market competition over the past few years, the current vitamin K3 competition pattern is relatively stable. At the same time, since production by some enterprises is affected by restrictions on the supply of sodium dichromate as a raw material, there is a trend of increasing market concentration in the later stages.

However, by acquiring 100% of LANXESS CISA's shares in 2019, the company effectively ensured the continued stability and relatively low cost supply of the raw material sodium dichromate. Since 2022, product prices have continued to rise due to a shortage of raw materials and a sharp rise in production costs. According to WIND data, as of May 20, 2022, the market price of Vitamin K3 was 190 yuan/kg, up 171.43% year on year, up 11.76% from the beginning of the year. The company currently has a production capacity of 3,000 tons of vitamin K3, which will directly benefit from product price increases.

Calcium pantothenate: The market is highly concentrated, and prices have risen sharply due to tight supply of raw materials and production. Since the production process of calcium pantothenate generates cyanide-containing wastewater, environmental pressure is high. Under increasingly strict environmental protection policies, new entrants in the industry are not sufficiently competitive in terms of production continuity and cost. In addition to being affected by fluctuations in the supply of raw materials, the industry's output is mainly concentrated in leading companies. According to Boyahexun, the concentration of the top 6 companies supplying calcium pantothenate in 2021 was about 90%. Since 2022, prices for calcium pantothenate products have been rising due to tight supply of raw materials and rising raw material prices at some domestic factories. According to WIND data, as of May 20, 2022, the market price for calcium pantothenate was 360 yuan/kg, up 407.04% year on year, up 171.70% from the beginning of the year. The company currently has a production capacity of 4,000 tons of calcium pantothenate, which is expected to benefit significantly from product price increases.

The product matrix continues to be enriched, and multiple businesses continue to expand and contribute to performance. 1) The main project in the company's fragrance sector is the “Construction Project with an Annual Output of 20,000 Tons of Phenol and 31,100 Tons of Benzodiol Derivatives”, which is being constructed in two phases. The first phase was officially completed and put into operation in the second half of 2020. The vanillin and ethyl vanillin produced have been officially sold to major food and cosmetic customers in Europe and the US. According to the announcement on May 17, the company has officially started the construction of the “Benzodiol Phase II Project”. In the future, with the completion and operation of the second phase, it is expected that the overall competitiveness of the company's “phenol” industry chain will be further enhanced. 2) The main new project in the company's pharmaceutical sector is the “Construction Project with an Annual Output of 1000 Tons of Iodine Contrast Agent and Intermediates”. The project is divided into two phases. The first phase has a production capacity of 400 tons of iodine contrast agent APIs. The main products include iodothyol, iodopanol, iodofol and ioxalol. It was completed and officially put into operation in the fourth quarter of 2020, with gradual release in 2021.

Profit forecasts. We expect the company's net profit for 2022-2024 to be 404 million, 4.51 million and 507 million yuan respectively, and the corresponding EPS is 0.38, 0.42 and 0.48 yuan respectively. Referring to the valuations of comparable companies, they were given 20 times PE in 2022, with a corresponding target price of 7.61 yuan, covering the “superior to the market” rating for the first time.

Risk warning. Prices of raw materials fluctuated greatly, downstream demand fell short of expectations, and the progress of projects under construction fell short of expectations.