Key points of investment
Investment advice: For the first time, the “increase in holdings” rating is covered, with a target price of HK$6.15. The company is the world's largest producer of monosodium glutamate and the world's largest producer of xanthan gum. It has leading biological fermentation technology and resource integration capabilities. We expect revenue for 2023/2024/2025 to be 331.3/396.1/472.7 billion yuan, with a year-on-year ratio of +20.6%/+19.6%/+19.3%; the net profit of the mother is 45.5/57.6/7.53 billion yuan, +17.9%/+26.5%/+30.8%, respectively. The company's target price corresponds to three times P/E in 2023.
The volume and price of monosodium glutamate and xanthan gum rose sharply, and the revenue of the colloidal segment recorded strong three-digit growth: in 2022, the company's revenue increased 27.6% year-on-year to 27.47 billion yuan, and the growth rate declined 1.5 pct. The revenue of the food additives segment increased 28.0% year on year to 13.30 billion yuan, and the growth rate increased 13.3 pct, mainly due to increased monosodium glutamate revenue. In 2022, the average sales price of MSG increased 12.1% year on year to 8,603 yuan/ton, sales increased 12.9% to 1.253 million tons, revenue increased 26.6% year on year to 10.78 billion yuan, and the growth rate increased 8.2 pct. The revenue of the Animal Nutrition Division increased 25.7% year-on-year to 9.58 billion yuan, and the growth rate declined 24.5 pct, mainly due to increased revenue from corn refining products and lysine. Affected by the company's expansion into new markets and changes in customer structure, the revenue of the premium amino acid segment fell 15.1% year-on-year to 1.20 billion yuan, and the growth rate declined by 65.2 pct. The revenue of the colloidal segment increased 114.7% year-on-year to 2.24 billion yuan, and the growth rate increased by 96.4 pct. The main benefits were the recovery in the petroleum industry and the increase in exploration activities for shale oil and natural gas, which led to an increase in sales and average sales prices of xanthan gum.
Cost ratios were optimized, and profit margins improved markedly: in 2022, the gross margin of the food additives, animal nutrition, and colloids segments increased 5.8pct/9.9pct/21.9pct to 19.5%/27.9%/54.6%, driving the overall gross margin to increase by 8.2 pct to 26.3% year-on-year. The company strengthened its expense management and control efforts. The sales expenses ratio decreased 0.1 pct to 6.4% year on year, and the management expenses rate decreased 0.6 pct to 3.8% year on year. Guimu's net profit increased 201.5% year over year to 3.86 billion yuan, the growth rate increased sharply by 98.2 pct, and Guimu's net interest rate increased 8.1 pct to 14.1% year on year.
Risk warning: fluctuating raw material prices, food safety issues, increased market competition.