2022H1's annual revenue rose 72 per cent year-on-year, and its net profit rose 667 per cent. In the first half of 2022, the company achieved operating income of 476 million yuan, + 72.18% compared with the same period last year; net profit of 58 million yuan, + 667.73%; net profit of 55 million yuan, + 3096.24%; and basic earnings per share of 0.10 yuan, compared with 0.01yuan for the same period last year. In 2022, Q1 Company achieved operating income of 228 million yuan, year-on-year + 65.13%, net profit of 24 million yuan, + 412.53%, net profit of 23 million yuan, + 891.02%, + 79.21%, 34 million yuan, + 1071.86%, and net profit of 33 million yuan, + 6072.09%, respectively. In 2022, through accurate research and evaluation of raw and auxiliary materials market and supplier optimization, the company will enhance the purchasing cost control ability of raw materials and auxiliary materials, strictly control purchasing costs, carry out important work such as internal production factor optimization and production organization innovation, further improve production efficiency and guarantee capacity, increase market expansion efforts, optimize customer structure, and further increase sales revenue. The operational efficiency and the ability to create efficiency have improved steadily, the status of the industry has been highlighted, and the ability to resist risks has been enhanced.

Profitability increased significantly, gross profit margin year-on-year + 14.23pct, net profit margin year-on-year + 10.16pct. The company's 2022H1 annual gross profit margin is 25.90%, year-on-year + 14.23pct; on the expense side, the company's expense rate during the first half of 2022 is 9.82%, year-on-year + 0.51pct, in which the sales expense rate / management expense rate / R & D expense rate / financial expense rate are 1.78% / 5.32% / 2.31% respectively, respectively + 0.20pct/+0.40pct/ + 0.72pct/-0.81pct. The increase in sales expenses and management expenses is mainly due to the merger of the subsidiary Yiqing Bio in the current period. The increase in R & D expenditure is mainly due to the higher R & D investment than that in the same period last year and the corresponding increase in R & D investment in Yiqing Biological Research and Development, the merged subsidiary of the current period. The company's net interest rate is 12.86%, year-on-year + 10.16pct.

The profitability of gelatin business increased significantly compared with the same period last year, and the sales revenue of collagen business increased significantly compared with the same period last year. From the perspective of business, the gelatin business developed steadily and the market demand improved. The operating income was 288 million yuan, with year-on-year + 12.35%, gross profit margin 27.58% and year-on-year + 17.37pct, accounting for 60.49% of the company's total revenue. Profitability increased significantly compared with the same period last year. The collagen series product business benefited from the continuous promotion of the company's "collagen +" series products, and developed steadily. The operating income was 37 million yuan, + 102.20% compared with the same period last year, accounting for 7.76% of the company's total revenue. The sales revenue increased greatly compared with the same period last year, with a gross profit margin of 25.91% and a year-on-year + 0.41pct. The business of capsule products achieved an operating income of 149 million yuan and a gross profit margin of 22.36%, accounting for 31.29% of the company's total revenue.

TO B end raw material product Pharmacopoeia II gelatin is expected to be put on the market this year, and the hemostatic material project is expected to get clinical approval by the end of the year. The company's main raw material products are gelatin, collagen, calcium hydrogen phosphate, hollow capsules and so on. (1) Gelatin is mainly used in the production of hollow capsules and food additives. There are 43 new customers of gelatin in the first half of 2022, and the application fields are extended to hot pot substrates, medical devices, essence beads, etc., and the product application fields are further broadened; Pharmacopoeia II gelatin is expected to be listed this year and can be used in injections, hemostatic sponges, soluble microneedle substrates and other fields, and the pre-market development work is continuing to promote. The project of Corunde hemostatic material in the participating company has been submitted for inspection and is expected to get clinical approval by the end of the year and start clinical work. (2) Collagen is mainly used in health food, functional food, cosmetics and other fields. Recently, the company has set up an international trade department and domestic and international trade offices in Hangzhou, Qingdao and other places. Integrated with the multi-point layout of terminal business, collagen added 40 new customers in the first half of the year, and developed copper foil, pet functional food, food tablets and other application fields. The company will continue to optimize the marketing model. Strengthen the development of international trade, seek high-quality distributors, and further expand the market share of collagen. (3) calcium hydrogen phosphate is mainly used for feed addition to maintain a good profit level.

(4) Yiqing bio-hollow capsule series of subsidiary products are mainly used in the field of medicine and dietary nutritional supplements, expanding the sales of plant capsules, enteric-coated gelatin hollow capsules and other varieties, actively opening up the market, and 15 new customers in the first half of the year. The company has an annual production capacity of 13500 tons of gelatin and 4300 tons of collagen, leading the industry in production scale.

To C-end retail products have launched new products to meet the diverse health needs of people of different ages. The company's retail products have been upgraded since 2021. On the basis of the original product series, the company has successively launched a series of new products, such as round element series of bovine bone collagen peptide powder (instant type), compound probiotics, substitute meal milkshake, collagen hydration mask (new style) and so on. The company will spare no effort to promote the marketing of terminal products, and will further launch a series of new products, such as bird's nest collagen peptide liquid drink, passion fruit enzyme powder, collagen bright mask (new model), and so on, which are expected to go on sale in September. According to functional classification, the company's products cover health food, nutritional protein, nourishing nutrition, intestinal management, weight management, beauty and skin care, leisure snacks and so on, which can meet the diversified health needs of people of different ages.

Yiqing Biology, a subsidiary, has launched a new hollow capsule intelligent industrialization project, which may further enhance the company's industry status and market share. Yiqing Bio currently has an annual production capacity of 30 billion hollow capsules, and has started a new intelligent industrialization project of hollow capsules, which is expected to increase the production capacity of gelatin hollow capsules by 15 billion tablets per year, and reach production in a year, in order to cope with the growing demand for hollow capsules in the medicine and health products market. After reaching production, the project is expected to achieve an average annual sales income of 168 million yuan (excluding taxes) and a net profit of 26.33 million yuan, which will further increase the company's profits and enhance the company's industry status and market share.

2022 employee stock ownership plan has been completed, with a total purchase of 16 million shares: the company previously announced that the total number of shares purchased by the company's employee stock ownership plan in 2022 is 16 million shares through bulk trading and centralized trading on the stock exchange, accounting for 2.74% of the company's total share capital. The total purchase amount is 111 million yuan (excluding handling fees and taxes), and the average purchase price is 6.83 yuan per share. The employee stock ownership plan of the company has completed the stock purchase on July 29, with a lock-up period of 12 months. This employee stock ownership plan demonstrates the confidence of the company's management in the future development of the company, helps to mobilize the enthusiasm of the company's management and employees, and improves the cohesion of all employees and the competitiveness of the company.

Investment suggestion: the company focuses on the whole industry chain of natural collagen, forming a production, R & D, sales and service system of high-quality bone grain base-gelatin-collagen-nutritional health products / medicinal materials. formed a good technical reserve, brand effect and customer reputation. As Guoen shares become the controlling shareholder, the company further speeds up the strategic landing, continuously improves the efficiency of operation and management, actively strengthens technological innovation, and develops extended products around gelatin and collagen. There is a layout in "medicine, health, food and beauty". With the rapid development of the collagen industry and the continuous introduction of new products, the company's revenue is expected to achieve sustained growth. We predict that the EPS of the company from 2022 to 2024 will be 0.13,0.17,0.21 respectively, and the corresponding PE will be 67X, 53X and 42x respectively, maintaining the investment rating of "increasing holdings".

Risk hints: the risk of repeated epidemic situation, the risk aggravated by market competition, the risk of purchasing major raw materials, the risk of mismatch between input and return in the process of market expansion of retail series products, policy risk, the risk of raising funds for investment projects that do not meet expectations.