Revenue in 2022 increased 54.11% year over year, and net profit of the mother increased 199.96% year over year. In 2022, the company achieved operating income of 943 million yuan, +54.11% year on year; net profit of 109 million yuan, +199.96% year on year; net profit after deduction was 101 million yuan, +274.97% year on year; basic earnings per share were 0.18 yuan, compared with 0.06 yuan in the same period last year. The company's performance increased dramatically in 2022, mainly due to the steady development of the gelatin series product business, the continuous in-depth promotion of “Collagen+” series products, and the merger of subsidiary Yiqing Biotech.

Expense rates are well controlled, gross margin is +9.03pct year over year, and net interest rate is +6.39pct year over year. The company's gross margin in 2022 was 24.74%, +9.03pct over the previous year. On the cost side, the company's expense ratio during 2022 was 10.29%, compared to +1.26pct. Among them, the sales expenses rate/management expenses rate/R&D expenses rate/R&D expenses rate/financial expenses ratio were 1.89%/5.43%/2.74%/0.23%, respectively, +0.20pct/+0.54pct/+0.62pct/-0.10pct, respectively. The company's net interest rate in 2022 was 12.24%, +6.39pct over the same period last year. Profitability increased significantly compared to the same period last year.

The full range of products achieved a year-on-year increase in revenue and steadily promoted the implementation of the “Collagen +” strategy. In 2022, the company's gelatin series products and by-products, calcium hydrogen phosphate/collagen business/organic fertilizer business/capsule business/other business achieved revenue of 582 million yuan/208 million yuan/0.02 million yuan/285 million yuan/0.06 million yuan respectively, accounting for 61.74%/7.21%/0.26%/30.21%/0.58%, +5.49%/+73.42%/+23.39%/+1683.95%/+93.23%. Among them, the gelatin series products and the by-product calcium hydrogen phosphate/collagen business/capsule business achieved gross profit margins of 26.24%/22.37%/21.42% respectively. Sales of gelatin series products once again exceeded 10,000 tons, and sales revenue increased 14.60% year on year, a record high; sales revenue of raw collagen increased 58.91% year on year, further expanding the scale advantage. Revenue from the capsule business increased markedly, and hollow capsule production and sales increased dramatically, mainly due to the merger of subsidiary Yiqing Biotech throughout the year.

Net cash flow from operating activities increased by 279.25%, and inventory turnover accelerated. In terms of cash flow, net cash flow from the company's operating activities in 2022 was 195 million yuan, an increase of 279.25% over the previous year. The main reason was the merger of the subsidiary Yiqing Biotech and the increase in cash received from sales of products and labor services in the current period, tax refunds received, and other cash received related to operating activities. In 2022, the company's inventory was $318 million, or -8.15% year on year; the number of inventory turnover days was 168.31 days, a decrease of 52.36 days over the previous year.

Additionally, the company's accounts receivable turnover days in 2022 were 56.58 days, a decrease of 15.74 days over the previous year.

Enrich the product matrix and strengthen brand promotion and channel building. On the basis of the original product line, the company has successively launched a series of new products such as the round series beef collagen peptide powder, compound probiotic solid drink, meal replacement milkshake, collagen hydrating/brightening mask, bird's nest collagen peptide liquid drink, passion fruit enzyme powder solid drink, mouth fragrance popsicles, etc. The target market covers the fields of enhancing immunity, bone health, oral health, intestinal health, oral beauty, etc., and has optimized the price system to better meet market demand. In terms of brand promotion, the company uses “prairie beef bones, small molecules, collagen peptides” as an entry point to focus on building a well-known national collagen brand. Movie and television actors were invited to endorse the Yuansu brand, Douyin stores carried out regular live broadcasts, and famous influencers were invited to carry out live broadcasts to bring goods. In terms of channel construction, on the one hand, the company has stepped up promotion work for the original online and offline channels. On the other hand, it has set up new private e-commerce platforms on the TOC side in regions where the Internet is relatively developed, such as Hangzhou and Qingdao, set up subsidiaries Guoen Jingtao and Dongbao Yuansu, and formed a professional team to specialize in marketing and promotion of terminal series products. In addition, the company is vigorously developing group buying business and building a well-known souvenir brand in the region. Combining the cognitive advantages of the “Yuansu” brand in the region, the company focuses on expanding offline channels such as pharmacies, beauty salons, convenience stores, specialty stores, supermarkets, etc., to achieve universal regional coverage of the product sales network. Actively carry out special product knowledge training and in-store related drainage work, mainly promote the theme of “Love Beauty and Love Health” to promote overall product promotion. At the same time, the company is also actively developing OEM business and providing corresponding guidance and services in product knowledge training, market development, packaging design, etc., to ensure further stable cooperation among customers. During the reporting period, the company achieved a new breakthrough in terminal series sales.

Expand new fields of application of gelatin and collagen products, and strive to build a professional production base for hollow capsules. During the reporting period, the company and its subsidiaries added 7 new patents, further deepened application research in the main business areas, and prepared technical reserves for subsequent product upgrades. Plasma replacement gelatin products developed in collaboration with the Institute of Physics and Chemistry of the Chinese Academy of Sciences were sold during the reporting period. At the same time, the company is also actively developing ultra-low endotoxin gelatin, which can be used more as a bioactive material in the medical and medical aesthetic fields, leading the company into the field of biomedical device material supply and helping the company accelerate transformation and upgrading. Research projects on the application of collagen in new fields such as textiles and light food are progressing smoothly with partners, and will be able to further expand new fields of collagen application. In addition, we are actively developing production processes for fish scale gelatin and collagen to prepare technical reserves for diversified production of gelatin products. The company will continue to step up technological innovation and research and development efforts, further develop multi-field applications of collagen and its extended industries, research and development of new products, new technologies and processes, reserve high-quality projects, and make full preparations for industrialization and marketization for subsequent development, upgrading and transformation. The company has launched the “New Hollow Capsule Intelligent Industrialization Project” and the “New Hollow Capsule Intelligent Industrialization Expansion Project” to meet the growing demand for hollow capsules in the pharmaceutical and health products market. After the project is fully put into operation, the company will have an annual output of nearly 70 billion hollow capsules, and will become a professional production base for hollow capsules with the highest single production capacity in China, a complete variety of categories, and a high degree of intelligence.

Investment advice: The company focuses on the entire natural collagen industry chain, and has formed a high-quality bone base - gelatin - collagen - nutritional health products/medicinal materials production, R&D, sales and service system, which has formed good technical reserves, brand effects and customer reputation. In recent years, the company has further accelerated the implementation of strategies, continuously improved operation and management efficiency, and actively stepped up technological innovation. It has developed extended products around gelatin and collagen, and is deployed in “medicine, health, food, and beauty”. With the rapid development of the collagen industry and the continuous improvement of public health awareness, the company's revenue is expected to continue to grow. We forecast that the company's 2023-2025 EPS will be 0.23 yuan, 0.26 yuan, and 0.29 respectively, and the corresponding PE will be 30X, 26X, and 24X respectively, maintaining an “increase in holdings” investment rating.

Risk warning: The expansion of the scale of operations may bring management risks, increased market competition risks, the risk of fluctuations in raw material prices, the risk of mismatch between investment and return in the retail product market expansion process, policy risks, and the risk that fund-raising investment projects do not meet expectations.