Key points of investment

B-vitamin monomer leader with multiple layouts for thick and thin hair

The company has been deeply involved in vitamins for many years and has achieved industrial production of vitamin B1, vitamin B6, folic acid (B9), vitamin D3, and biotin (B7). The company currently has production capacity of 7,000 tons of VB1, 6,500 tons of VB6, 500 tons of folic acid, and 90 tons of biotin (depurified). Among them, VB1 and VB6 products have the leading market share in the world. Furthermore, folic acid and biotin are also in the first tier of the industry. According to the company announcement, while consolidating the market position of existing products, the company plans to deploy products such as VA, VB5, cholesterol, 25-hydroxyvitamin D3, etc., and also plans to build VE in Ningxia. The company is based on B-vitamin monomers and continues to expand its product range. We believe the company is expected to become a world-class vitamin platform enterprise.

Inventories of major products are gradually being removed, and prices are expected to bottom out

Affected by the dual control of energy consumption and sea freight, overseas customers overbought in 21Q4, and vitamin exports remained high at this stage.

Affected by continued downstream inventory removal in '22, vitamin exports are expected to be 299,000 tons for the whole year, a decrease of 24,000 tons from '21. Demand for vitamin exports is weak, and prices of various vitamins continue to decline. According to Boyahexun, the annual prices of VB6, VB1, and biotin 22 fell by 20.36%, 33.24%, and 43.45%. In the context of continuing declining prices of VB6 and VB1 in '22, some companies lacking a cost advantage are already at a loss. We believe that prices of VB1, VB6, and biotin products are already at the bottom of history. Some loss-making companies may exit in the future, gradually clear out their backward production capacity, and add to the gradual decline in downstream customer inventories. Prices of these products are expected to bottom out and rise.

Vertical deepening and horizontal expansion, moving towards a first-class vitamin enterprise, the company implements a vertical deep-cultivation+horizontal expansion development strategy. On the one hand, it continues to extend the industrial value chain vertically to achieve self-production of some raw materials and reduce production costs. Taking VB1 as an example, the company has achieved self-production of acetamidine hydrochloride and ABL. Thanks to integration and production capacity scale advantages, when some companies lost money, the company 22H1VB1 still had a gross profit margin of 41.87%. The company plans to build a GBL expansion project in Ningxia to further extend it upstream to VB1 and enhance the competitiveness of VB1. On the other hand, the company is actively developing and deploying new vitamin monomers, and plans to build 6,000 tons of VA (reduced to 1000 tons) of VA, 7,000 tons of VB5, 350 tons of cholesterol, and 6 tons of 25-hydroxyvitamin D3 projects. The company has been deeply involved in the vitamin field for many years, and the production capacity scale and production cost of existing products are leading the industry. With the new production capacity of these new products gradually implemented, world-class vitamin platform companies are already in sight.

Profit forecasting and valuation

Leading B-vitamins, the production capacity and cost of existing products are industry-leading, and product price increases are extremely flexible. Furthermore, new production capacity for new products is gradually being implemented, further opening up the company's growth space. It is estimated that in 23-25, the company's revenue was 2,439/26.50/3.195 billion yuan, net profit of 647/751/927 million yuan, EPS was 1.48/1.72/2.12, and the corresponding PE was 19.52/16.80/13.62. It was covered for the first time and gave a “buy” rating.

Risk warning

Risk of fluctuations in vitamin prices; risk of new production capacity falling short of expectations; risk of fluctuations in raw material prices.