Core views

In the first half of the year, the company achieved revenue of 190 million yuan, an increase of 16.13% over the previous year. The implementation of the new national standard has led to an increase in domestic revenue. Some overseas customers are switching relatively slowly. Domestic revenue and overseas revenue were 1.39 billion yuan and 60 million yuan respectively, +53.48% and -25.66% year-on-year. The decline in the share of overseas revenue compared to the same period last year has led to changes in the customer structure. Combined with price adjustment factors, the current level of gross profit was affected, and the level of expenses was controlled. Net profit for the first half of the year fell 30.34% year on year to 35 million yuan.

The implementation of the new national standard began in 2023, and demand for the company's products is expected to continue to rise. DSM ARA's main patent has expired, and overseas customers have two supply and three supply requirements. The company is gradually developing market development activities, and sales in overseas markets can be expected.

occurrences

On August 25, the company released its 2023 annual report: In the first half of the year, it achieved revenue of 199 million yuan, an increase of 16.13% over the previous year, net profit of 35 million yuan, a year-on-year decrease of 30.34%, after deducting non-return net profit of 223 million yuan, a year-on-year decrease of 36.50%. Among them, we achieved revenue of 111 million yuan in a single second quarter, an increase of 16.10% over the previous year, net profit of 21 million yuan, a year-on-year decrease of 23.36%, after deducting non-return net profit of 115 million yuan, a year-on-year decrease of 29.14%.

Brief review

The implementation of the new national standard led to an increase in domestic revenue. Overseas customers were in the transition period. In the first half of the year, the company achieved revenue of 199 million yuan, an increase of 16.13% over the previous year. Among them, the human nutrition business and animal nutrition business achieved revenue of 179 million yuan and 07 billion yuan respectively, up 10.94% and 29.52% year on year; domestic revenue and overseas revenue were 1.39 billion yuan and 60 million yuan respectively, +53.48% and -25.66% year-on-year.

In February 2023, the “new national standard” for infant formula was officially implemented, increasing the maximum amount of DHA and ARA added. Major domestic customers have completed the switch between new and old national standards one after another, bringing growth to the company's domestic infant matching business, and achieving steady growth in domestic sales and revenue of ARA and DHA products. Small to medium customers and some overseas customers are lagging behind in approval progress, and the transition is relatively slow.

Changes in the customer structure and price adjustments affect profits. In terms of cost levels that continue to control product profit levels, the decline in the share of overseas revenue compared to the same period last year has caused changes in the customer structure. Combined with price adjustment factors, it affects current gross profit levels. The company's gross margin for the first half of the year fell 4.42 pcts year on year to 41.04%, and the second quarter fell 0.74 pcts year on year to 43.16%. The decline improved from the first quarter. Expenses continued to be controlled. The sales expenses rate for the first half of the year fell 1.04 pcts to 6.37% year on year, the single second quarter fell 0.46 pcts to 5.69% year on year; the management expenses rate for the first half of the year fell 0.85 pcts to 9.51% year on year, and the single second quarter fell 0.86 pcts to 8.85% year on year.

In addition, the company's non-operating income for the first half of the year was 112 million yuan, mainly DSM cash compensation, down 3.46% year on year. In the first half of the year, accounts receivable, bad debt provisions and inventory price losses were calculated, resulting in credit impairment losses and asset impairment losses of RMB 308.33 and RMB 4,828,900, respectively. The company's net profit for the first half of the year fell 30.34% year on year to 35 million yuan, and return net interest rate fell 11.70 pcts to 17.53% year on year; net profit for the single second quarter fell 23.36% year on year to 210 million yuan, and return net interest rate fell 9.53 pcts year on year to 18.50% year on year, and the decline narrowed compared to the first quarter.

DSM ARA's main patents have expired, and the international business layout is accelerating the promotion of overseas markets. DSM patent protection expires in June 2023, and overseas downstream customers have also increased their suppliers to ensure the safety of raw material supply requirements. The company continues to actively develop customers in overseas markets, and has participated in international exhibitions with global influence in France, Switzerland, and the Netherlands with a new brand image. The supply volume of major core customers has broken through the original limit, and cooperation has gradually deepened. Dealers focus on developing the European, American and Southeast Asian markets, and distributors in the European market have achieved their first commercial order breakthrough. At the same time, the company is using ARA as a breakthrough in cooperation to gradually promote the evaluation and admission of the company's algae oil and DHA products in the field of infant formula. In addition to the infant formula business, it is also actively promoting cooperation with international customers in the field of dietary supplements, opening up a broad overseas market space.

Profit forecast: Since the company's customer structure is still in the adjustment stage, the profit forecast has been lowered. It is estimated that in 2023-2025, the company will achieve revenue of 519 million, 668 million yuan, and 839 million yuan, and net profit attributable to parent. Corresponding to PE 23-25 will be 34X, 26X, and 21X, giving it a “increase in holdings” rating.

Risk warning:

1. Risk of a sharp rise in raw material prices: The raw materials required for the company's production are mainly glucose, yeast powder, lactose, corn syrup, etc. The supply is affected by various factors such as the global economic and political environment, wars, regions, and climate. A sharp rise in prices may adversely affect the company's production costs and profitability.

2. Overseas customer expansion falls short of expectations: DSM's patent has expired, and the company has a lot of room for future overseas market development. If market development is adversely affected by policy changes in overseas countries or disputes with competitors, etc., customer expansion is blocked, and the company's performance growth falls short of expectations.

3. Increased risk of market competition: Foreign DSM companies maintain a leading position in the world. If competitors increase competition by lowering sales prices, etc., it will cause the risk of price fluctuations of the company's products and reduce the company's profit level.