Main points of investment

Event: the company achieved revenue of 2.42 billion yuan (+ 21.8%, year-on-year data in parentheses, the same below) in the first half of 2023; net profit of 391 million yuan (+ 64.8%); deduction of non-return net profit of 393 million yuan (+ 65.5%), net operating cash flow of 1.04 billion yuan (+ 1636%), the performance slightly exceeded expectations.

Q2 performance accelerated month-on-month, and profitability was strengthened: in a single quarter, Q2 achieved revenue of 1.15 billion yuan (+ 16.3%), net profit of 215 million yuan (+ 57.8%), and net profit of + 22.8%. The rapid growth of performance is mainly due to the rapid recovery of the demand side after the release of the epidemic. In terms of profitability, due to the reduction in raw material costs superimposed by economies of scale, the company's Q2 gross profit margin increased by 4.7pct to 30.9% month-on-month. During the period, the expense rate declined with income growth, with the management expense rate falling 4.3pct to 3.0% year-on-year, and the financial expense rate falling 2.0pct to 1.2% year-on-year. Taken together, the net profit rate of sales in the first half of 2023 increased by 4.2pct to 16.2% compared with the same period last year, and the profitability continued to strengthen.

Antibiotic intermediates recovered well after epidemic: according to varieties, the income of sulfur red, cephalosporin intermediates and penicillin intermediates were 730 million yuan (- 2.4%), 530 million yuan (+ 16.3%) and 980 million yuan (+ 54.7%) respectively in the first half of 2023. After the opening of the epidemic, the demand for cephalosporins and penicillin intermediates recovered well Among them, the average price of 6-APA increased by 6.7% over the same period last year, the sales volume increased by 50.8% over the same period last year, the average price of penicillin G potash increased by 3.4% year on year, and the sales volume increased by 16.4%.

The synthetic biology research and development pipeline is rich, the production capacity is rich, and the project is about to be launched: the company has established a synthetic biology research institute in Shanghai, relying on a strong R & D team and four major chassis bacteria research and development platforms, there are more than a dozen project pipelines, and some of the pipelines are expected to land in a short period of time. The first phase of the new base of synthetic biology Gongliu is expected to be completed by the end of 2023. The design capacity of the new base includes 300 tons of red myrrh alcohol, 300 tons of 5-hydroxytryptophan, 0.5 tons of ergothione, 10 tons of Iketoin, 5 tons of salidroside, 10 tons of nocarone, 50 tons of melatonin, 500 tons of plant sphingosine and other raw materials. Flexible production workshop Among them, red myrrh alcohol has entered the dynamic sale, 5-hydroxytryptophan, ergothione and other varieties will enter the pilot stage, which is about to provide performance for the company.

Profit forecast and investment rating: we maintain the company's 2023-2025 homing net profit forecast of RMB 63.00 million, corresponding valuation is 34-31-28 times; based on company 1) with the deregulation of prevention and control, the demand for antibiotics resumes; 2) synthetic biology projects such as red myrrh alcohol are about to land; 3) synthetic biology relies on 4 chassis platforms, follow-up pipelines are rich; coverage for the first time, give "buy" rating.

Risk hints: upstream raw material price increase risk, synthetic biology project research and development risk, synthetic biology project sales less than expected risk, market competition risk, core technical personnel loss risk.