Profit attributable to 2023H1 shareholders during the period was 1,538 million yuan, a year-on-year decrease of 24.10%.
The company achieved operating income of about 13.580 billion yuan in 2023, an increase of 5.0%; overall gross profit of 2,957 billion yuan, a year-on-year decrease of 17.40%; profit attributable to shareholders during the period was 1,538 billion yuan, a year-on-year decrease of 24.10%; the board of directors declared an interim dividend of 23 HK cents per share, with a payout rate of 35%. The increase in the company's revenue was mainly due to the increase in revenue contribution of the Food Additives, Colloids and High-grade Amino Acid Products business segments, and the overall decline in gross profit was mainly due to the decline in gross profit of the Food Additives and Animal Nutrition segments.
By product: 1) Food Additives Division: 2023H1 achieved revenue of 6.559 billion yuan, up 8.10% year on year, gross profit margin of 14.80%, down 6.1 pct year on year, of which MSG revenue was 4.996 billion yuan. The average sales price and sales volume decreased and increased 3.6% year on year, respectively. 2) Animal Nutrition Division: 2023H1 achieved revenue of about 4,091 billion yuan, a year-on-year decrease of 14%, a year-on-year decrease of 14.50%, a year-on-year decrease of 14.90 pct. Among them, the average sales price and sales volume of threonine decreased by 20.20% and 19.80%, respectively, and sales volume of lysine increased by 16.50% year-on-year. 3) High-grade Amino Acids Division: 2023H1 achieved revenue of about 827 million yuan, an increase of 54.70% over the previous year. The increase in revenue benefited from an increase in sales volume, and a decrease of 3.8 pct in gross margin over the previous year. 4) Colloid Division: 2023H1 achieved revenue of about 1,632 billion yuan, a year-on-year increase of 73.60%, a gross profit margin of 61.10%, and a year-on-year increase of 10.5 pct. Among them, the average selling price of xanthan gum was 40,864 yuan per ton, an increase of 44.20% over the previous year.
Implement an internationalization strategy and continue to reduce production costs. The company will implement an international strategy with high quality and speed up the implementation of a more complete international production and sales network. Although the US project has been delayed, the company is still conducting feasibility studies on establishing production bases in other locations; the company will establish three regional marketing centers in America, Europe, and Southeast Asia to serve overseas customers. At the same time, the company plans to continue to expand MSG production capacity in China to make full use of the company's advantages in chemical costs; in terms of cost reduction, the company will continue to improve production technology to reduce unit production costs, improve the logistics system, further optimize logistics processes, and reduce logistics costs.
Profit Forecast and Valuation: Due to falling prices of the company's main products, we lowered our profit forecast for the company. We expect the company's net profit to be 30.63 (-14.03%), 35.17 (-16.21%), and 37.55 (-18.19%) yuan respectively for 2023-2025, corresponding EPS to 1.21, 1.39, and 1.48 yuan/share, respectively.
Referring to the valuation of comparable companies and considering the difference in valuation of AH shares, the company was given 5 times PE in 2023, corresponding to 6.05 yuan. Calculated based on the exchange rate of HKD to RMB 0.93, the corresponding target price was HK$6.51) (previous target price was HK$8.10, based on 5 times PE in 2023, -19.63%) to maintain the “better than market” rating.
Risk warning: risk of a sharp rise in raw material prices, risk of falling product prices, risk of a slowdown in economic growth