Event 1:

According to the company's semi-annual report of 2023, H1 Company achieved revenue of 6.33 billion yuan in 2023,-12.1% year on year, and net profit of 30 million yuan,-96.2% of the same period last year. Among them, Q2 single-quarter revenue of 3.18 billion yuan, year-on-year-15.0%, month-on-month + 0.8%; achieve home net profit of 30 million yuan,-92.8%, month-on-month + 2045.1%.

Event 2:

The company's board of directors passed the bill on the construction of a new solid methionine plant, and the company plans to invest 150,000 tons / year of solid methionine project in Quanhui Petrochemical Industrial Park, Hui'an County, Quanzhou City, Fujian Province, China, with an estimated total investment of about 4.9 billion yuan.

Comments:

Weak demand, the price of the main product is under pressure, and the performance of 23H1 has declined: in 23 years, the operating income of H1 company's functional products was 4.16 billion yuan,-20% compared with the same period last year; the operating income of special products was 1.75 billion yuan, + 14% compared with the same period last year. The gross profit margin of the company's main products declined, functional products and special products 23H1 gross margin of 470 million yuan, 700 million yuan, respectively,-68%,-5%. Due to the sharp drop in the price of functional products superimposed by weak demand under high inflation in overseas markets, 23H1 performance fell under pressure. Both the methionine business and the vitamin A business are under greater price downward pressure. The price of vitamin A has fallen sharply since April 2022, and by Q2 in 2023, the price of vitamin A has dropped from more than 70 euros / kg to about 21 euros / kg. Among them, the revenue growth of special products is mainly due to the double-digit sales growth of special products business.

The decline in raw material prices and the rise in sales are expected to improve profitability in the second half of 23: the average prices of propylene, methanol and sulfur of H1 Company in 23 years are 7081 yuan / ton, 2486 yuan / ton and 1007 yuan / ton, respectively, compared with the same period last year. The price of raw materials has dropped sharply, and the cost pressure has been reduced. Driven by the growth of sales in the Chinese market, the sales of liquid methionine H1 increased significantly by 24%. Special products business, ruminant products achieved double-digit sales growth, nutrition health business driven by strong growth in North America and Latin America, sales continued to grow. With lower costs and higher sales, the company's business is expected to improve profitability in the second half of the year.

Invest in Quanzhou methionine project, methionine production capacity is steadily expanding: the company plans to invest 150,000 tons / year solid methionine project, the total investment is expected to be about 4.9 billion yuan, the project construction period is about 26 months, the project is expected to be put into production in 2027, the payback period of investment is 9 years. The project will make full use of the integrated synergy with Sinochem to save capital and operating expenses, further expand methionine production capacity, and consolidate the company's leading position in the methionine industry. optimize the company's methionine product structure and capacity layout at home and abroad. Through continuous industrial investment, the company has expanded its production capacity, and its European production platform has continuously implemented a number of capacity expansion projects. Since Q3 in 2021, the European project has increased its additional production capacity by 80,000 tons per year. The second phase of Nanjing plant will be put into operation in 2022, and the total production capacity of liquid methionine in Nanjing production platform will reach 350000 tons. New production capacity and existing factories to form a strong synergy and scale advantages, the company's cost competitive advantage will continue to strengthen, the company's performance is expected to further thicken.

Profit forecast, valuation and rating: considering the decline of the company's main business and the decline of the company's profitability, we downgrade the company's profit forecast for 2023-2025. It is estimated that the company's return net profit for 2023-2025 will be 4.10 billion yuan (down 72%) / 12.75% (down 24%) / 14.31 billion yuan (down 24%) respectively, equivalent to 0.15 million yuan 0.48 billion yuan for EPS respectively, and the company's methionine production capacity expansion is advancing steadily. Special products are growing against the trend, and the two pillars help the company develop, so it maintains a "buy" rating.

Risk tips: the downstream demand of the aquaculture industry is weaker; the project production schedule is not up to expectations; the price of raw materials fluctuates.