Event: the company released its third-quarter performance report, with revenue of about 898 million yuan in the first three quarters of 2023, down 17% from the same period last year, and net profit of about 149 million yuan, down 58% from the same period last year.

In a single quarter, the company achieved operating income of 241 million yuan in the third quarter of 2023, down 13% from the same period last year and 29% from the same period last year. The net profit from home was 32 million yuan, down 44% from the same period last year and 51% from the previous quarter. The net profit after deducting non-return was 27 million yuan, down 50% from the same period last year and 56% from the previous year.

The VD3 economy remains in the doldrums and its profitability falls short of expectations.

The company reported a sharp decline in results in three quarters, which we believe is mainly due to the downturn in the main business of the company's VD3.

According to Boya and Hexun data, the average price of VD3 (500,000 IU / g) in the third quarter of 2023 was 581,000 yuan / ton, down 9.2% from the same period last year, and 1.1% from the previous month. The decline is not dramatic, but the price has dropped by 79% from the high of 48.9% in September 2018 to 278,000 yuan / ton at the end of June 2020. At present, the price is basically at a historical low, and the process of clearing the production capacity of the industry is long. VD3 prices remain in the doldrums, and the company's profitability as the leader of the VD3 industry is impaired by the malaise of the VD3 industry.

Short-term cost burden is heavy, high barriers, high growth logic still exist since the company acquired Garden Pharmaceutical, due to collection and other factors, the profitability of Garden Pharmaceutical has declined, which is also one of the important reasons for the decline of the company's performance. In terms of expenses, the company's Jinxi Science and Technology Park project has brought a certain depreciation burden after it was put into production. In order to promote the "one vertical and one horizontal" development strategy, the company has increased its R & D investment, and convertible bonds have also brought additional financial costs. Superimposed VD3 main business and garden pharmaceutical industry revenue decline has magnified the expense burden. The comprehensive expense rate during the three-quarter report period from 2021 to 2023 is 13%, 33% and 42% respectively, and the short-term cost burden is heavy.

But the company VD3 main business long-term high barrier, high growth logic still exists, the company has lanolin-NF cholesterol-VD3/25- hydroxyl VD3 whole industry chain layout, 25-hydroxy VD3 unique chemical synthesis technology and NF cholesterol large-scale production complement each other, unique 24-dehydrocholesterol purification technology, the whole industry chain cost advantage and the limited NF cholesterol market, build a solid barrier to entry of 25-hydroxy VD3 industry. In September, 22, Jinxi Science and Technology Park 15.6t 25-hydroxy VD3 crystal has been completed and put into production, and the industrial advantage is stable, only waiting for the downstream feed and health products market of 25-hydroxy VD3 to continue to open.

Earnings forecast, valuation and rating

We estimate that the company's operating income for 2023-25 will be 100 million yuan in 13-21-30 (before 23-24, it will be 2.4 billion yuan), with a year-on-year growth rate of-9%, 65%, 43%, and net profit of 2.6%, 4.6%, 590 million yuan respectively (797 million before 23-24), and a year-on-year growth rate of-32%, 74%, 29%, respectively. The EPS is 0.47, 0.83 and 1.07 yuan per share respectively, and the 3-year CAGR is 15%. The company has the layout of the whole industry chain of VD3, has relatively strong barriers to entry and a clear growth path, but in view of the slow realization of active VD3 business and the downturn of the company's main business, and taking into account the current market style, we lowered the company's 24-year target price to 11.5 yuan, downgraded to "hold" rating.

Risk hints: VD3 market continues to be in the doldrums, 25-hydroxy VD3 market is not advancing as expected, 25-hydroxy VD3 production technology is iterative, and information asymmetry in corporate governance