Core views:

In 2022, the company's European plant was affected by rising energy prices, and methionine and vitamin A costs and construction were under pressure. As energy prices fall, profits are expected to improve marginal.

At the same time, the company's second plant in Nanjing was successfully put into operation, further enhancing the company's cost advantage and consolidating its leading position in liquid methionine. Currently, production capacity is climbing smoothly. Furthermore, the company's second pillar continues to advance, revenue has steadily increased, profits have been stable, and sales of products such as ruminant products and nutrition promotion business have grown strongly. Looking forward to the future, the profit of functional products is expected to improve marginal, and the growth of special products is worth looking forward to.

occurrences

The company released the 2022 performance report

In 2022, the company achieved revenue of 14.529 billion yuan, an increase of 12.90% over the previous year, and achieved net profit of 1,247 billion yuan to the mother, a decrease of 15.29% over the previous year. The revenue for Q1, Q2, Q3, and Q4 was 34.57, 37.38, 36.05 and 3.729 billion yuan respectively. The year-on-year ratio was +15.50%, 25.22%, +7.15%, and +5.76%, respectively. The net profit returned to the mother was 427, 4.42, 2.74 and 103 million yuan respectively, up to +16.35%, -1.56%, -36.85%, and -53.38%, respectively.

Brief review

Cost impact, performance pressure, steady growth of special products

In terms of methionine prices, according to Baichuan, the average price of solid methionine in 2022 was 20.70 yuan/kg, -0.16% year on year, and the average price of liquid eggs was 16.25 yuan/kg, -3.13% year on year. The overall price was stable. Despite a weak trend in market demand for methionine business in the second half of the year, sales continued to grow throughout the year. Both solid and liquid methionine products achieved double-digit growth, mainly due to double-digit sales growth in China, the Middle East, and Africa. In terms of vitamins, the market demand for vitamin A has shrunk, and sales prices continue to be under pressure. The company temporarily adjusted vitamin A production to enhance cost competitiveness and improve the level of working capital.

In terms of specialty products business, the business achieved 5% growth in 2022, and gross margin stabilized at 7%, mainly due to steady growth in sales of all animal products. At the same time, the company actively carried out price management and product portfolio optimization, stabilized profits and increased revenue.

In 2022, due to rising energy prices and the decline in the vitamin A boom in Europe, overall earnings were under pressure. Gross margin was 28%, down 6.15 pct from the previous year, and the net profit of the mother was 1,247 million yuan, down 15.29% from the previous year.

Methionine: Demand has been growing steadily, the company's Nanjing plant has been successfully put into operation, and the leading position has been further stabilized

Methionine is one of the company's two major functional products. Influenced by factors such as population growth, rising economic standards in developing countries, and the continuous development of modern livestock farming, demand for methionine in the Asia-Pacific region, including China, is growing rapidly, and global demand for methionine is growing steadily at a rate of 5%-6%. On the supply side, production capacity is highly concentrated in the global methionine market. Major manufacturers include Evonik, Andisu, Novice, Sumitomo, etc. The company's production capacity continues to expand in Europe and domestically. Since the third quarter of 2021, European production capacity has increased by 80,000 tons. In September 2022, the second phase of the company's Nanjing plant was successfully put into operation with 180,000 tons, and domestic production capacity increased to 350,000 tons. Against the backdrop of high energy prices in Europe, domestic factory production has a clear cost advantage. With the gradual release of the company's domestic production capacity, profit and market share are expected to increase further.

Special products: Special products are developing rapidly, and long-term space can be expected

Special products include transglutinic methionine for ruminants, products that enhance digestive performance (enzyme preparations), products that improve animal health (probiotics, short and medium chain fatty acids, plant extracts and organic selenium), palatable products, mycotoxin management products, feed preservation products suitable for monogastric animals, aquatic product additives and innovative alternative protein products. Based on strong R&D strength, the company continues to launch new products, and the high added value provided by special products has been recognized by customers. In 2022, the company's ruminant product sales grew strongly. The fourth quarter also set a single-quarter sales record, mainly due to sales growth in all major global markets and the continuous increase in the penetration rate of the new products Stormin ML and RumenSmart; the growth in the nutrition and health promotion business (Hili Selenium, Antelai), digestive products (Rozebur) and mycotoxin products led to excellent sales performance in the monogastric animal products business; the aquatic products business continued to grow in various markets around the world, benefiting from FramelCo mergers and acquisitions, water digestion product lines (in particular (Aqualyso) saw a significant increase in sales. Looking to the future, the company's first FICON in the world? The construction project of Kaidisu's Chongqing plant project for a large-scale production unit for innovative protein products was completed in 2022, and the first Fitcon was signed with downstream? A strategic cooperation agreement for innovative protein products. With the release of future production capacity and the advancement of other individual products, specialty products can be expected to grow. According to the company's 2021 annual report, the company's special products plan to reach 6 billion yuan in revenue by 2025.

Profit forecast and valuation: The company's net profit for 2022, 2023, and 2024 is estimated to be 12.47, 15.84, and 1,779 billion yuan respectively, while EPS is 0.46, 0.59, and 0.66 yuan respectively. Corresponding to current stock prices PE is 19.2X, 15.1X, and 13.5X respectively. Maintain an “increase in holdings” rating.

Risk warning: Macroeconomic fluctuations (As an international company, the company provides products and services to approximately 3,900 customers in more than 110 countries or regions around the world.

Operating performance, financial conditions and development prospects will be largely affected by global macroeconomics); fluctuations in raw materials (the main raw materials used by the company include propylene, sulfur, methanol, ammonia and natural gas. The company's raw material prices fluctuate according to policies or markets, which will cause the company's product costs to fluctuate. If the sales price of the product does not fluctuate at the same time, it will cause the company's performance to fluctuate); competition intensifies (the competition faced by the company is mainly large well-known companies with strong financial resources, which also face competition from many other enterprises, including new entrants in the regional market or local market); special product development falls short of expectations (As the second pillar of the company's development, there is some uncertainty about product promotion and application. If planning falls short of expectations, it will affect the company's future growth)