The company is the main manufacturer of middle and high-end spices in China, with rich product categories and high-quality customer structure; the high-end market potential of domestic flavors and fragrances is huge, and the leading enterprises have more advantages; the R & D capability is outstanding, and the layout of Thai factories opens a new space for growth.

Domestic middle and high-end spices are mainly produced by enterprises with rich product categories and high-quality customer structure. The company is one of the main domestic middle and high-end spices production enterprises, the main products are natural spices, coolants, synthetic spices, etc., a total of more than 160 kinds of products, more than 90 kinds of natural flavor products, among which vanillin and WS-23 products are the company's dominant products, ranking first in the world in terms of market share. In order to maintain the unique aroma and taste of the products, downstream flavor enterprises and end customers have a more stringent certification system for suppliers, which takes a long time and will not be easily adjusted and replaced once they cooperate. Relying on the advantages of large-scale production, rich product categories and strict quality control, the company has established long-term and stable cooperative relations with international well-known companies in the flavor industry, such as international flavors and fragrances, Qiwalton, Fenmei and ABT, as well as well-known companies in the fast moving consumer goods industry, such as Mars Wrigley, Mondelez International Inc International and Colgate.

The high-end market has great potential, and the leading enterprises have more advantages. In 2021, the global flavor and fragrance market is worth 29.1 billion US dollars, and the leading enterprises in the industry are mainly European, American and Japanese enterprises, with the top four accounting for about 50% of the market. In 2020, the sales scale of Chinese flavors and fragrances is 51.1 billion yuan, the industry concentration is low, and the competition in the low-end field is fierce. The high-end field is mainly occupied by overseas enterprises, and there is a huge market potential. With the global production of flavors and fragrances transferred to developing countries, China's flavor and flavor industry is facing great opportunities for development. In recent years, with the stricter environmental protection policy and the elimination of production capacity of some backward small factories, the environmental governance costs of existing enterprises have risen, raising the threshold for entry into the flavor and fragrance industry, which is conducive to leading enterprises to make use of capital and scale advantages to increase market share.

Outstanding R & D capabilities, layout of Thai factories to open up a new space for growth. In addition to using its own R & D ability to continuously improve the selection of raw materials and production process, the company adopts the immobilized enzyme catalysis technology of synthetic biology, and is currently trying to use this technology to produce methyl cinnamate and other products, which can greatly reduce the production cost after successful mass production. The company now has three production bases in Jiangxi, Wuxue and Nantong, plans to invest no more than 300 million yuan in the layout of Thailand production base, and plans to build vanillin, oak moss, benzaldehyde, benzyl alcohol and other products, which can effectively reduce tariffs to the United States. expand overseas coverage and further enhance profitability.

Give a "highly recommended" investment rating. It is estimated that the company's income from 2022 to 2024 will be 730 million yuan, 820 million yuan and 1.09 billion yuan respectively, the net profit will be 130 million yuan, 150 million yuan and 240 million yuan respectively, and the EPS will be 1.56 yuan, 1.81 yuan and 2.91 yuan respectively. The current stock price corresponding to PE is 28.5,24.5 and 15.3 times respectively.

Risk tips: new product development is not as expected, environmental protection, large fluctuations in raw material prices, the implementation of vanillin pressure drop plan led to a decline in performance.