Key points of investment
Huakang Co., Ltd. released its 2022 annual report, and the revenue growth rate exceeded expectations
1) Looking at the whole year, the company achieved revenue of 2,210 billion yuan (+38% year on year) and achieved net profit of 319 million yuan (+34.88% year on year) in 2022. The high growth in performance stemmed from the continuous interpretation of export substitution in China's sugar substitute industry under the Russian-Ukrainian incident, and the company benefited as a hidden sugar substitute champion. 2) Looking at a single quarter, the Q4 company achieved revenue of 612 million yuan (+50.61% compared to the same period) and achieved net profit of 65 million yuan (+21.98%) to the mother. The extremely high revenue growth rate stemmed from the fact that the supply of sorbitol and maltitol products was in short supply, and performance increased directly after the new production capacity was implemented in Q3. Profit growth is slower than revenue growth due to various large expenses such as year-end futures trading and donations, totaling nearly 15 million yuan. After deducting this, profit growth is almost in sync with revenue.
Gross margin remains stable, and the level of fee control continues to be steady
In terms of gross margin, the gross profit margin for the full year of 2022 was 22.94%, which was almost the same as the previous year; Q4 alone achieved a gross profit margin of 24.30%, a slight decrease of 0.45 pcts from the previous month, mainly due to rising raw material costs during the period. In terms of cost rate, the company's sales expense ratio for the full year of 2022 was 1.6% and the management expense ratio was 3.2%, with a steady decline over the previous year; the absolute value of R&D expenses was nearly 100 million, an increase of 40% over the previous year, demonstrating the company's determination for long-term development. In terms of net interest rate, the company's net interest rate for the full year of 2022 was 14.51%, -0.34pcts year on year, which remained relatively stable; the net interest rate returned to the mother in Q4 alone was 10.57%, a sharp drop of 7.08pcts from the previous year, stemming from heavy spending drags down in Q4.
Seize historical opportunities and forge ahead, and follow the trend of sugar-free substitution and plan to create another Huakang1) Company has once again seized historical opportunities, forming a deep bond with major overseas customers. In 2022, the company achieved overseas revenue of 1,129 billion yuan, +71% over the same period last year. Under the Russian-Ukrainian “black swan” incident, the company focused on the industrial dividend of order transfers. At the same time, the company mainly uses a direct sales model all year round, with direct sales revenue accounting for nearly 90%. Coupled with the fact that the company has always stabilized supply under multiple cycles of industry turbulence, it has formed a deep bond with major customers, and is optimistic about its sustainable development under high customer stickiness. 2) It is proposed to issue convertible bonds to invest in the construction of a new plant of 1 million tons, in line with the domestic trend of sugar-free substitution, daring to be the first in the world. The company plans to issue convertible bonds to raise no more than 1,325 billion yuan for the construction of a new plant in Zhoushan, Zhejiang, with a total production capacity of 1 million tons. The project plans to cover high-margin products such as alloxaccharide, sorbitol, and maltitol. The aim is to further enrich the product structure, consolidate competitive advantage, and become the world's leading sugar alcohol company as soon as possible.
Profit forecasting and valuation
The company's main business is sugar substitute manufacturing. We expect the company to achieve revenue of 26.08/29.22/3.353 billion yuan in 2023-2025, an increase of 18.54%/12.05%/14.76% over the previous year. The estimated net profit of the mother is 4.02/502/591 million yuan, the year-on-year growth rate is 26.03%/24.67%/17.74%. The corresponding EPS is 1.76/2.20/2.59 yuan/share, and the corresponding PE is 15/12/10 times. Considering that the sugar-free era has just arrived in China, demand for sugar substitutes is on the rise. Combined with the company's broad prospects and certain competitiveness, it maintains a “buy” rating.
Risk warning
Fluctuations in product prices, exchange rate fluctuations, fluctuations in shipping costs, intensification of market competition, etc.