Incidents:

The company released its 2023 mid-year report, achieving revenue of 1,032 million yuan, a year-on-year decrease of 8.26%; net profit from Gimu was 89.36 million yuan, an increase of 3.08% over the previous year. The domestic chlormycin market was repaired and new vaccine products were released. The company's performance in the first half of the year was in line with expectations.

Multiple industries go hand in hand and pay attention to further improvements in performance in the second half of the year

Veterinary drug business: Inventory pressure in overseas markets is high, and the domestic market continues to recover. The company's veterinary drug business achieved revenue of 486 million in the first half of the year, an increase of 0.72% over the previous year. By market, the US agent Shuoteng Company has a backlog of inventory, which has reduced the purchase volume, dragging down the company's parent company's revenue; while domestic market demand has recovered, the sales revenue of subsidiaries such as Muxing Chongqing has increased markedly. In addition, prices of corn, energy, etc. have declined, and the company's veterinary drug business costs have also dropped a lot.

Vaccine business: Revenue is growing, but rising costs are dragging down profits. In the first half of the year, sales of the company's vaccine business still increased by 6.55% year-on-year. The main reason was that the company increased its customer development efforts and the release of new products. However, in terms of profit, Jin He-you, a core subsidiary of the company's vaccine business, achieved net profit of 17.65 million yuan in the first half of the year, a year-on-year decrease of 41.43%. The main reason for the decrease in net profit is to expand product sales, and related expenses such as sales staff remuneration, travel expenses, and services provided by third parties have increased; the vaccine to be produced in the first phase of the Jinhe Youben Animal Vaccine Project has not yet obtained an approval number, and related management costs have increased.

Environmental business: Significant increase in performance contribution. In the first half of the year, Jinhe Environmental Protection achieved revenue of 98.88 million yuan, which is basically the same as the previous year; net profit was 43.19 million yuan, an increase of 6.36% over the previous year. In the fourth quarter of '22, the company acquired 49% of the minority shares of Jinhe Environmental and became a wholly-owned subsidiary, so its contribution to the company's overall performance increased dramatically in the first half of this year. The performance of the environmental protection sector continues to grow and has become the most stable component of the performance of listed companies.

Continue to be optimistic about the company and maintain a “buy” rating

The company is on the fast track of recovering its performance: on the one hand, the company is the world leader in veterinary polymycin and production capacity will double in 2024. As the bottom of the veterinary polymycin industry recovers, the company's kinmycin business performance will continue to recover; on the other hand, the company's new animal vaccine varieties will be launched one after another, and the profitability of the company's animal vaccine business will increase markedly. We expect the company's EPS to be 0.19 yuan, 0.22 yuan, and 0.26 yuan respectively in 2023-2025. We are optimistic about the company and maintain the “buy” rating.

Risk warning: risk of rising raw materials and energy prices, risk of market fluctuations, risk of R&D falling short of expectations