What happened: the company released its semi-annual report of 2023, and its income in the first half of 2023 was 287 million yuan, down 22.6% from the same period last year. The net profit from its mother was 46 million yuan, down 32.02% from the same period last year, and its non-net profit was 38 million yuan, down 43.48% from the same period last year. Of this total, the income in the second quarter was 163 million yuan, down 10.99 percent from the same period last year, up 30.24 percent from the previous year, and the net profit from the home was 26 million yuan, down 31.17 percent from the same period last year, up 24.28 percent from the previous quarter, deducting 23 million yuan from the same period last year, down 38.19 percent from the same period last year and up 50.77 percent from the previous year.

Coolants have become the main source of income, while the income of natural spices has declined. During the reporting period, the company's revenue from the natural flavor sector reached 95 million yuan, down 50.08% from the same period last year, accounting for a decline in total revenue, mainly due to the inventory removal of overseas customers. The gross profit margin was 42.99%, an increase of 1.94 pct over the same period last year. The revenue of the coolant sector reached 133 million yuan, an increase of 15.65% over the same period last year, accounting for more than 50% of the total income, mainly due to the increase in sales of coolants, with a gross profit margin of 30.71%, a year-on-year decline of 6.99% pct; synthetic spices sector revenue of 48 million yuan, a year-on-year decrease of 22.29%, a gross profit margin of 25.15%, an increase of 6.86 pct.

After the first quarter, overseas inventory has been digested, the company's shipments have rebounded, and the performance of the second quarter has achieved month-on-month growth.

The market scale of the flavor and fragrance industry is growing steadily, and the industry concentration is expected to increase. According to data from Grand ViewResearch, General Administration of Customs and head Leopard Research Institute, the global market revenue of flavors and fragrances has increased from US $27.6 billion in 2018 to US $29.2 billion in 2022. The overall industry shows a trend of transferring to the markets of developing countries, among which the Asian market has the highest growth rate. The company is the main manufacturer of middle and high-end spices in China, with more than 160 kinds of products. Based on the characteristics of multi-variety, sketches and fast delivery in the flavor and fragrance industry, the superimposed environmental protection policy is stricter, and it is expected that small and medium-sized enterprises and backward production capacity will be gradually eliminated in the future. the scale advantage of leading enterprises will be gradually enhanced.

Plan overseas Thai factories and be optimistic about long-term capacity expansion. The company plans to build a production base in Thailand and plan 1000 tons of vanillin, 200t of oak moss, 100t of benzaldehyde, 50t of benzyl alcohol, 100t of methyl cinnamate, 150t of coolant and 150t of leaf alcohol. It is expected to be completed and put into production in 2024, which will help the company to reduce tariff expenditure and expand overseas coverage.

Maintain the "overweight" investment rating. Based on the decline in shipments of the company's natural spices sector, the company's performance forecast is downgraded. It is estimated that the company's 2023-2025 net profit will be 1.2,1.8 and 240 million yuan respectively, and EPS will be 1.47,2.16,2.94 yuan respectively. The current share price corresponds to PE 22.8,15.5,11.4 times, maintaining the "overweight" investment rating.

Risk hint: new product development is not as expected, environmental protection, capacity construction is not as expected.