Incident: The company's revenue for the first half of 2023 was 12.727 billion yuan, +6.29% year on year, net profit from parent was 769 million yuan, +21.26% year on year, basic EPS was 0.36 yuan, and average ROE was 7.47%. Among them, revenue for the second quarter was 7.930 billion yuan, +11.65% year-on-year, and net profit of 495 million yuan, or +22.30% year-on-year.

Sugar leaders are growing steadily, with a single quarter's revenue and profit reaching record highs!

In the long run, the company has advantages in the entire industry chain and value chain. The sugar market share accounts for nearly 1/3 of the country, forming the unique competitiveness of “self-production+sugar refining+import”, and its leading position in the industry continues to be consolidated. 2023Q2 achieved revenue of 7.9 billion yuan and net profit of 495 million yuan in a single quarter, a record high in a single quarter!

1) Self-produced sugar: Since the beginning of the year, domestic and foreign sugar prices have risen rapidly as production cuts in major sugar-producing countries such as India, Thailand, and China in the northern hemisphere have been gradually verified. In 2023, the average price of sugar in H1 in China reached 6427.7 yuan/ton, of which the average price for single 23Q2 was 6856.6 yuan/ton, an increase of +19.3% from the average annual price in '22, which led to a rapid rise in the sales price of domestic sugar products. However, since 23H1 (as of August 25), the average price of sugar in China was 6,817 yuan/ton, and domestic sugar prices continued to fluctuate at a high level. The company's Q3 sugar sales business is expected to continue to maintain high income/profit!

2) Sugar trade: As of early August, the south-central region of Brazil had produced 22.68 million tons of sugar, +22% over the same period (Panthenol Technology). We analyzed that Brazil's increase in production is gradually being realized or the marginal improvement in global sugar prices between supply and demand. The difference in trade prices within and outside the quota may continue to improve, or is expected to increase the company's sugar trade profits.

3) Processed sugar: In the long run, the sugar refining business effectively extends the company's sugar industry chain and achieves the company's long-term growth.

The company has now developed a sugar production capacity of more than 2 million tons/year, ranking first in the industry. It is expected to add 350,000 tons of annual production capacity with the completion of the sugar refining production capacity in Zhangzhou in the future, which is expected to further promote the steady growth of the company's sugar business.

The profit of the tomato business reached a new high, rapidly growing into a new profit growth point 23H1. The company's tomato product revenue increased sharply year-on-year. COFCO Tunhe Tomato's net profit reached 265 million yuan, an increase of over 230% over the same period, another record high for the same period! The company is the largest tomato processing enterprise in China and the second largest tomato processing enterprise in the world, and will continue in the future: 1) Steady transformation: mainly exports to domestic, large packages to small packages to accelerate the transformation of domestic market business; 2) Innovative production capacity layout: actively explore the new comprehensive processing layout model of tomatoes and beet sugar “sugar-mixed tomatoes”, coordinate factory employment, raw material security, energy consumption optimization, etc., to achieve synergistic advantages; 3) Branding layout: Implement brand strategy plans, use ketchup, juice, and Ding as breakthroughs to promote business transformation into product series and branding.

Investment suggestions: In the context of continued high sugar prices and the rapid development of the company's tomato business, the company's 2023-25 revenue was partially raised to 31.31 billion yuan, 31,591 billion yuan, and 32.188 billion yuan (previous value was 28.4 billion, 30.5 billion yuan, 32.2 billion yuan), +18%, +1%, +2%; net profit raised to 1,353 billion, 1,145 billion yuan, 1,307 billion yuan (previous value was 1,115 million, 971 million yuan, 1,070 million yuan), +82%, -15%, 14% over the same period, maintaining “buy” Enter the “Rating”.

Risk warning: risk of policy changes; risk of fluctuations in sugar prices; risk of exchange rate changes; risk of supply of raw materials; risk of the international situation.