Event: The company announced its 19Q1 results, achieving operating income of 636.08 million yuan, an increase of 2.74% over the previous year, and achieving net profit of 14.11 million yuan to the mother, -41.32% year on year.
The company is mainly engaged in R&D, production and sales of food and feed additives. The products mainly include vitamin products such as biotin and folic acid, and biological preservatives such as streptococcin lactate, natamycin, and epsilon-polylysine. The company is one of the earliest enterprises engaged in the production of biotin and biopreservatives in China. Through years of business accumulation and continuous technological innovation, process optimization and application development, the company has developed into a leading enterprise in the product segment market, and is in a leading position in the world in terms of large-scale production capacity, technical process level, product market share, and brand awareness. By acquiring Tongliao Shengda and holding 75% of its shares in Q4 in 2018, Q4 will add new production capacity for vitamin B2, xanthan gum and biological preservative products.
The company has a leading position in the vitamin and biological preservative industry. After years of market refinement and competitive challenges, the company has taken an important position in domestic and global product segments. In the biotin field, Shengda Biotech is the world's largest supplier, with production, sales and export volume ranking first for many years, with a global market share of about 30%; in the field of folic acid, the company's market share in 2018 was close to 18%; in the field of bio-preservatives, the subsidiary Xinyinxiang is the main supplier of streptococcus lactate and natamycin in the world. It is also one of the few domestic enterprises that can also industrialize the production capacity of streptococcus lactate, natamycin, and epsilon-polylysine hydrochloride series products. As a standard for streptococcus lactate, natamycin and epsilylysine hydrochloride, the industrial standard for streptococcus lactate, tananacin The main drafting unit for basic national standards The company has a leading market position and strong market influence in industry segments.
Vitamin products, biotin and folic acid 18Q1 are expensive. As the prices of biotin and folic acid continue to fall, the company's product sales volume has maintained an upward trend, increasing its market share in order to stabilize its position in the industry. Biotin and folic acid achieved revenue of 57.1762 million yuan and 17.1778 million yuan respectively during the reporting period, up -20.47% and 41.52% year-on-year. In biological preservative products, the amount of streptococcus lactate increased steadily, and the price of natamycin increased steadily. Streptococcus lactate and natamycin achieved revenue of 27.2102 million yuan and 8.962 million yuan respectively during the reporting period, with year-on-year increases of 31.3% and 16.96% respectively.
Prices of biotin and folic acid are expected to rise at the bottom. The price of biotin is currently at an all-time low, and the price of folic acid has begun to rise. Analyzing the market quotes of biotin and folic acid from 2007 to 2018, the current price of biotin (100 percent off) is already around 2,500 yuan, so there is little chance that the price will continue to be lowered; after the price of folic acid experienced a low price in 18Q4, the price of 19Q1 has already begun to rise, and the upward trend in Q2 is obvious. We are optimistic about subsequent price increases for biotin and folic acid, especially for folic acid varieties. The driving factors driving the price increase of biotin and folic acid are, in theory, a sharp loss of production capacity on the supply side due to increased environmental protection, and the second is the rise in product prices in the industrial chain due to the increase in raw material costs of biotin and folic acid.
The acquisition of Tongliao Shengda merged to integrate business resources and create synergies.
(1) Xanthan gum, the main product of Tongliao Shengda, and Vitamin B2, and Shengda's products have a certain degree of intersection in terms of sales markets and target customer groups. After the acquisition is completed, Shengda Biotech's rich industry experience, management capabilities and high-quality customer resources will help expand sales channels for Tongliao Huanghelong products.
(2) The company's current production capacity for streptococcal lactate has seriously limited the expansion of the scale and market share of this product. In addition to the project with an annual output of 1,000 tons of streptococcal lactate and a project with an annual output of 2,000 tons of sucrose ferment, the company is also planning projects such as vitamin B12, polylysine, and beta-thymidine in Tongliao Shengda to enrich the variety of products and increase profit contribution points.
(3) It is conducive to reducing production costs and improving the company's profitability. Tongliao Shengda is located in the western part of the Northeast Golden Corn Belt. It is rich in raw materials, close to neighboring roads and highways, convenient transportation, and rich local coal resources. It has a clear cost advantage over Tiantai County in Zhejiang Province in terms of raw materials and energy procurement.
Profit forecast: We expect the company to achieve operating income in 2019-2021:660.50/748.87/860.60 million yuan, the corresponding net profit attributable to the mother is 115.66/117.78/140.99 million yuan respectively, and the corresponding PE is 25.16/24.70/20.64 times respectively, giving it a “buy” rating.
Risk warning: The price increase in the vitamin category fell short of expectations; vitamin sales shrank due to price increases; Tongliao Shengda products could not be put into production as scheduled.
