The company's revenue and net profit to the parent both reached record highs in 2022. The company continues to strengthen the “domestic+overseas”, “processing+trade” and “futures+spot” business model and the layout of the entire industry chain. Profit and risk resistance have steadily improved, the leading position in the industry continues to be consolidated, and the advantages of major international sugar traders have become more and more remarkable. Based on industry-leading business intelligence and scarce raw sugar import quota resources, the company has built a unique and difficult competitive barrier to imitate. Domestic sugar prices have continued to rise rapidly and sharply since 2023. Coupled with the company's full inventory impairment in 2022, the company's performance in 2023 is expected to continue to rise. We maintain the company's 2023-2024 EPS forecast at 0.52/0.58 yuan, and the new 2025 EPS forecast at 0.65 yuan. Referring to the comparable company's 2023 Wind, they agreed to expect an average of 24 times PE, giving the company 24 times the PE in 2023, with a corresponding target price of 12 yuan to maintain the “buy” rating.

Revenue and net profit returned to the mother both reached new highs. COFCO Sugar announced its 2022 annual report. The company achieved revenue of 26.44 billion yuan in 2022, an increase of 5.1% over the previous year; Guimu's net profit was 744 million yuan, an increase of 43.1% over the previous year, after deducting net profit of 624 million yuan from non-Gimo, an increase of 32.2% over the previous year. Based on the operating advantages of the entire industry chain, the company fully mobilized collaboration between upstream and downstream industries, accurately determined domestic and foreign sugar price trends, and further consolidated its leading position in the industry.

The company's revenue in 2022 and net profit returned to the mother both reached record highs.

The business model has been perfected, and the competitive advantage is becoming more and more prominent. In 2022, the company maintained steady operation, and the sugar business achieved revenue of 24.37 billion yuan, an increase of 3.8% over the previous year, accounting for more than 90% of the company's total revenue. The company's sugar business volume reached 4.65 million tons in 2022, with a market share of 31%, and its profitability increased significantly. The company has become the largest sugar company far ahead in China. The company lays out key links in the entire industry chain and has formed a perfect business model where “domestic sugar+overseas sugar”, “homegrown sugar+processed sugar+trade sugar” and “futures sugar+spot sugar” cooperate and reinforce each other. Scale, profit and resilience to risks lead the industry. Furthermore, the company is vigorously developing the C-side branded product business, which is expected to form an “industrial sugar+brand sugar” product portfolio, further enhancing profitability and performance stability. We believe that the company's profitability is expected to continue to improve in the future: on the one hand, organic collaboration among all links in the industrial chain will help maximize operating efficiency; on the other hand, the combination of futures spot, internal and external sugar, and processed sugar trade will help strengthen anti-cycle capacity and effectively manage fluctuations in sugar prices, which is the biggest business risk for sugar companies.

Build a unique competitive barrier based on scarce import quotas. As the “national team” and “main force” to ensure the country's sugar safety, the company has firmly controlled raw sugar import quotas over the years and is the main channel for domestic raw sugar imports.

Based on the advantage of extremely scarce import quotas, combined with rich and mature business intelligence and the ability to control diverse sugar sources, the company has the ability to effectively cope with large fluctuations in international raw sugar prices, control raw material costs, and guarantee operating rates. We believe that the company has developed a unique and difficult to imitate competitive advantage in the industry, and its leadership position continues to strengthen.

The risk of inventory impairment has been fully mitigated, and expectations for higher performance have been strengthened. In 2022, the company calculated a large amount of 375 million yuan to prepare for inventory price reductions based on prudential principles, greatly reducing the risk of performance in 2023 and beyond. Since the first quarter of 2023, domestic sugar prices have continued to rise rapidly and sharply. According to Mysteel data, the average domestic white sugar price in 23Q1 was 5,942 yuan/ton, an increase of 5.4% over 22Q4, and the highest price has already exceeded 6,400 yuan/ton. It is expected to further increase the company's self-produced sugar performance in 2023. The risk of inventory impairment that has been fully mitigated is compounded by a sharp increase in domestic sugar prices, and expectations for the company's high performance in 2023 are being formed.

Risk factors: changes in trade policies; risk of natural disasters; risk of fluctuations in sugar prices; risk of exchange rate changes; recurrent COVID-19 in local regions; geopolitical risks, etc.

Profit forecasts, valuations and ratings: The company's revenue and net profit returned to the mother in 2022 reached record highs. The business model of the company's entire industry chain strengthens its leading edge. The company has taken control of import quotas for scarce raw sugar and has created a unique competitive barrier that is difficult to imitate. The risk of inventory impairment that has been fully mitigated is compounded by the rising domestic sugar spot price boom, and the company's performance is expected to continue to rise in 2023. We maintain the company's 2023-2024 EPS forecast at 0.52/0.58 yuan, and the new 2025 EPS forecast at 0.65 yuan. Referring to comparable listed companies Bailong Chuangyuan, Sanyuan Biology, and Nanning Sugar's 2023 Wind, they all expected an average of 24 times PE, giving the company 24 times PE in 2023, corresponding to a target price of 12 yuan, maintaining the “buy” rating.