Performance review
1H22's performance exceeded our expectations.
The company announced 1H22 results: revenue 12.93 billion yuan, year-on-year + 35.3%; return to the mother net profit of 2.03 billion yuan, corresponding to earnings per share of 0.8 yuan, year-on-year + 242.8%, much higher than we expected. The large increase in profit in the first half of 2022 is mainly due to: 1) the volume and price of monosodium glutamate, threonine, lysine and other products have risen; 2) the high oil price has brought strong demand for xanthan gum industry, and the price has continued to rise; 3) the average corn price of 1H22 has dropped and pushed up profits. The average corn price of 1H22 Company is about 2262 yuan / ton, compared with the same period last year. 4) the exchange rate of RMB against the US dollar fell in the first half of the year, and the company made a profit of nearly 210 million yuan.
From a sub-sector point of view, the revenue of 1H22 food additives, animal nutrition, high-grade amino acids and colloids is 60.6, 47.5, 53.5 and 940 million yuan respectively, accounting for 46.9 percent, 36.8 percent, 4.1 percent, 7.3 percent, and 20.9 percent, 29.4 percent, 39.9 percent, 50.6 percent, respectively, compared with the same period of 1H21.
Trend of development
Corn and other raw material prices have fallen, the fourth quarter is the traditional peak season, monosodium glutamate is optimistic to maintain high profits. From the supply point of view, the monosodium glutamate industry oligopoly pattern is stable, according to Zhuangchuang information 2021 production capacity CR3 of about 80%; from the demand point of view, we believe that the epidemic gradually alleviated after the peak season consumption is expected to boost. The current market price of monosodium glutamate is 9625 yuan / ton, which is + 13.2% compared with the same period last year. In terms of price difference, the price difference between monosodium glutamate and corn is 3557 yuan / ton, month-on-month + 2.2%. We are optimistic that under the consumption boom in the fourth quarter, the price difference of monosodium glutamate will remain stable.
The progress of internationalization is accelerated, while upstream integration enhances competitiveness. The company looks forward to the future: 1) Qingdao Scientific Research Center will start operation in May 2022, which is expected to enhance its R & D capacity; 2) strengthen the B2C model to provide product solutions; 3) purchase land in North Dakota, USA. Prepare to build a new base for animal nutrition products; 4) complete the acquisition of 300000 tons of synthetic ammonia capacity. We are optimistic that the company's profits will increase after the increase in the degree of integration, and the construction of overseas bases will help the company to further increase its global market share.
The profit of xanthan gum is upward, and the pattern of amino acid products is improving. We are optimistic that the price of crude oil will remain high in the future, and the profit will continue to grow under the booming demand for xanthan gum. In terms of amino acids, on the demand side, we believe that the continuous warming of pig stocks will effectively increase the use of amino acids; supply-side AMD solid lysine production stopped last year, plum blossom biology 300000 tons of lysine production capacity was put into production, the growth is limited. We believe that with the optimization of the industry pattern, the gross margin of amino acid products is expected to remain high.
Profit forecast and valuation
Due to the upward boom in the industry and the profits brought about by the decline in the RMB exchange rate, we have raised the net profit of 2022 / 2023 by 166.2% and 132.7% to 3.518 RMB 3.413 billion. The current stock price corresponds to 2.8pm 2.9x in 2022 / 2023. To maintain an outperforming industry rating, and due to a sharp increase in earnings and a decline in market valuations for the corn processing industry, we raised our target price by 61.1% to HK $5.80, corresponding to a price of 3.6max 3.7x for 2022max 2023, which is 29.2 per cent higher than the current share price.
Risk.
The prices of raw materials such as corn and coal have risen sharply, and the competition pattern has deteriorated.