Key points of investment:

The company released its 2022 annual report: During the reporting period, the company achieved revenue of 2,210 billion yuan (YoY +38%), achieved net profit of 319 million yuan (YoY +35%), and achieved net profit of 318 million yuan (YoY +62%) after deducting non-return mother's net profit (YoY +62%). The annual performance was in line with expectations. The company plans to distribute a cash dividend of 6 yuan (tax included) for every 10 shares to all shareholders. Among them, 4Q22 achieved revenue of 612 million yuan in a single quarter (YoY +51%, QoQ -4%), achieved net profit of 65 million yuan (YoY +22%, QoQ -43%), and achieved net profit of 89 million yuan (YoY +124%, QoQ -18%) in a single quarter. The single-quarter results were slightly lower than expected. The main reason was: 1) Q4's forward settlement business led to a loss of nearly 22 million yuan; 2) Q4's forward settlement business led to loss of nearly 22 million yuan; 2) Q4's 60th anniversary celebration and launch of the company's 60th anniversary celebrations and kick-off activities Prefectural Charity Federation Additional expenses exceeded 10 million yuan due to factors such as the donation of RMB 3 million to the Huabu Town People's Government's Xinghua Education Fund.

The growth rate of business in the international market was remarkable, and annual performance increased significantly. By product, in 2022, the company's crystalline sugar alcohol products achieved revenue of 1,669 million yuan, an increase of 47% over the previous year, and liquid sugar alcohol achieved revenue of 512 million yuan, an increase of 14% over the previous year. By region, in 2022, the company achieved domestic revenue of 1,051 million yuan, an increase of 19% over the previous year, and overseas revenue of 1,129 billion yuan, an increase of 69% over the previous year. The sharp increase in international business was mainly due to high energy costs in Europe caused by the Russian-Ukrainian conflict and other factors. The production and costs of related sugar and alcohol companies were affected. The company seized historical opportunities, kept up with customer demand in a timely manner on the premise of maintaining steady growth in original customer sales.

Business conditions in 4Q22 were good, revenue increased sharply year over year, and exchange rate fluctuations and other factors caused the performance to fall slightly short of expectations. The company's product sales were good in the Q4 quarter, achieving revenue of 612 million yuan, a sharp increase of 51% over the previous year and a slight decrease of 4% from the previous quarter. At the same time, the gross profit margin for the Q4 quarter was 24.30%, an increase of 5.06 pct over the previous year, and a decrease of 0.45 pct from the previous quarter. However, under the influence of other non-operating factors, the profit side experienced a sharp decline from month to month, achieving net profit of 65 million yuan to the mother, an increase of 22% over the previous year, and a decrease of 43% from the previous month.

The xylose technical improvement project improved the raw materials for xylitol. Sorbitol and maltitol continued to grow rapidly. The Zhoushan project focused on big health products to open up room for future growth. The combination of the raw material xylose largely determines the profitability of xylitol. The company's “annual output of 30,000 tons of D-xylose green intelligent upgrading project” will be put into operation in the third quarter of this year. At that time, the competitive advantage of the company's xylitol products will be further strengthened.

Sales of the company's crystalline sorbitol and crystalline maltitol products have continued to grow rapidly in recent years. The company put into production 30,000 tons of sorbitol and 20,000 tons of maltitol in 2021 and 2022, respectively, to support business development. Considering the company's long-term development, the company selected the Zhoushan International Grain and Oil Industrial Park in Zhejiang to plan and build a second production base, and set up a 1 million tons of corn deep-processing health food ingredient project to produce health food ingredient products such as sorbitol, fructose syrup, maltose syrup, glucose syrup, maltitol, mannitol, polydextrose, antadextrin, modified starch for food, aloxone sugar, etc. Improve the upstream supply chain layout vertically, guarantee the supply of starch as the main raw material, and continue to enrich the product structure with horizontal development to meet the diverse needs of customers. It is expected that the project will be gradually put into operation in the second half of 2024, opening up the company's future growth space.

Investment analysis: Considering the pace of construction of the company's Zhoushan project, the products put into production in the early stages were mainly liquid products with low profit margins. The 2023-2024 net profit forecast for 2023-2024 was lowered to 3.92 and 5.08 (the original values were 446 million yuan and 570 million yuan), and the net profit forecast for 2025 was 632 million yuan. Corresponding PE was 21, 13, and 10X respectively, maintaining the “increase in holdings” rating.

Risk warning: 1) raw material prices have risen sharply; 2) product prices have fluctuated greatly; 3) new projects have fallen short of expectations.