Key Investment Events On April 25, the company announced its 2020 quarterly report. In 2020Q1, the company achieved revenue of 445 million yuan, +0.34% year-on-year; net profit of 269 million yuan, -8.28% year-on-year; net profit after deduction of 253 million yuan, +6.80% year-on-year. In Q1, non-performance growth increased by 6.80%, and gross margin rebounded. 1) 2020Q1, the company's revenue +0.34%; net profit minus +6.80%; gross margin is 77.74% (+1.11pct). The reasons why the growth rate of non-net profit is higher than the growth rate of revenue due to the pandemic are: the reduction in business and market development expenses affected by the pandemic (sales expenses rate -4.12 pct, profit increase of about 0.18 million yuan), management expense ratio - 327 pct (profit increase of about 115 million yuan), and financial expenses rate +334 pct (profit reduction of about 115 million yuan). 2) In 2019, the company's revenue was +0.75%; net profit was +5.09% year-on-year. The reasons for the higher profit growth rate than the revenue growth rate are: benefiting from preferential policies in Tibet (income tax concessions, profit increase of about $34 million), reduced business and marketing expenses (sales expenses rate -0.87 pct, profit increase of about $19 million), enhanced cost control (management expenses rate -0.69 pct, profit increase of about $15 million), and a decrease in gross margin of 0.89 pct (affected by changes in revenue structure, to 76.75%, profit reduction of about $20 million). By category, the edible essence sector is basically stable, with revenue of 1,979 billion yuan (-1.41%), accounting for 90.58%, gross profit ratio of 81.36% (+0.13pct), and price of essence unit price of 1891 million yuan/ton (+0.73%); the food ingredients sector achieved rapid growth, revenue of 98 million yuan (+41.34%), accounting for 4.47%, gross profit margin of 22.25% (-6.51pct). Vigorously expand the food ingredients business, and consumption upgrades drive industry growth and brand concentration. 1) Vigorously expand the food ingredients business: In 2019, the company seized opportunities in the food industry to expand the food ingredients business and successfully developed anti-photoemulsification and transparent emulsification products; plant extract products can already be used in the field of roasted nuts; and food ingredients revenue increased by 41.34%. 2) Consumption upgrades drive industry growth and brand concentration increase: There are more than 1,000 fragrance and essence companies in China. Industry concentration is low, and the gap between fragrance use and developed countries is large; 2014-2019, per capita disposable income CAGR is 8.8%, and consumption upgrades drive industry growth and brand concentration. Vigorous research and development is building technical barriers, and demand in the downstream tobacco industry is very rigid. 1) Accumulated brand power for 24 years: Deeply involved in the essence industry for 24 years, with well-known brands such as “Hideng”, “Huabao”, and “Peacock”. The main customers include famous enterprises such as Yunnan Tobacco, Shanghai Tobacco, Yizi, and ****. 2) Vigorously develop and build technical barriers: In 2019, R&D expenses were +9.88%, revenue accounted for 7.53%, and 10 invention patents including crab flavor and 4 utility model patents were obtained. 3) Demand in the downstream tobacco industry is rigid: Tobacco consumption is addictive consumption, and demand is very rigid. 2016-2019, the CAGR of national cigarette production was -0.26%, which is relatively stable. The investment recommendation company is a leading edible essence company, vigorously expanding the food ingredients business. Consumption upgrades drive industry growth and brand concentration, vigorously develop and build technical barriers, and demand in the downstream tobacco industry is rigid. Net profit for 2020-2022 is estimated at 1,261/13.07/1,414 billion yuan, with a growth rate of 2.04%/3.71%/8.13%, corresponding to a valuation of 16.1/15.5/14.3 times on April 24 (market value of 20.3 billion yuan). Risk indicates risk of core technology and formulation being compromised; risk of high customer concentration; risk of project progress falling short of expectations