The probiotic industry has a long slope, and the domestic substitution logic is clear: China's probiotic industry is developing rapidly. Downstream consumption covers various fields. The CAGR of China's probiotic market from 2013 to 2020 was 19.59%. The upstream probiotic raw materials industry has an oligopoly, and overseas brands control most of the patented strains. Due to differences in regions and eating habits, probiotics suitable for the intestinal microbial structure of Chinese people are popular in China. Domestic probiotic companies continue to step up research and development, and the core strains are showing a trend of domestic substitution.
The company's strong R&D capabilities have built technical barriers, and the compound business is the basis for seizing the probiotic circuit: The company is mainly engaged in compound additive business, and the basic market is stable over a long period of time. Since 2017, it has been actively expanding into the probiotic field, and the business has expanded rapidly and is expected to become the second growth line. The company's R&D team is led by well-known experts, has extensive technology accumulation, and has the largest resource bank of lactic acid bacteria in Asia. Downstream customers are rich in resources, covering dairy products, pharmaceuticals and other fields, including Mengniu, Shengmu Hi-Tech, Sunflower Pharmaceutical, Yunnan Baiyao, etc. Under high demand, the company's production capacity is saturated. In 2022, the company plans to issue a fixed increase and invest 620 million yuan to expand production capacity. Performance is expected to be freed from the shackles of production capacity.
Investment advice: The probiotic industry is developing rapidly, domestic substitution trends are highlighted, and the company is expected to benefit as a domestic probiotic company. We expect the company to achieve net profit of 1.50/2.26/298 million yuan from 2023 to 2025, and the PE corresponding to the closing price on May 24, 2023 is 31x/21x/16x.
The first coverage gave an “increase in holdings” rating.
Risk warning: risk of consumption recovery falling short of expectations; risk of customer concentration; risk of downstream market fluctuations
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