Events:

On October 24, the company released its third-quarter performance report, showing that in the first three quarters of 2023, the company achieved operating income of 474 million yuan, down 12% from the same period last year; net profit from home was 69 million yuan, down 30% from the same period last year; and net profit from non-return was 63 million yuan, down 31% from the same period last year.

In a single quarter, the operating income of Q3 company in 2023 was 187 million yuan, an increase of 10% over the same period last year and 15% from the previous year; the net profit from the home was 23 million yuan, down 27% from the same period last year and 11% from the previous year.

Deducting non-post-performance continuous repair, the fourth quarter is expected to maintain the growth trend in the first three quarters of 2023, the company deducted non-return net profit of 15 million yuan, 23 million yuan, 25 million yuan, respectively. We believe that downstream customer demand continues to pick up in the third quarter, with the end of downstream depots and increased procurement at Christmas abroad in the fourth quarter, the company's Q4 performance is expected to maintain growth.

Q3 achieved a gross profit margin of 28% in 2023, a month-on-month decline in 3pct, which we speculate is due to an increase in revenue from coolants and synthetic spices with lower gross margins. The company focuses on natural spices, whose added value far exceeds that of synthetic spices, and is optimistic about the repair elasticity of the overall performance after the demand for natural spices has warmed up.

The base in Thailand has officially started, and the release of vanillin is expected.

On August 22, a groundbreaking ceremony was held at the company's Thai base, which is expected to be put into production in the middle of next year. By laying out its base in Thailand, the company is expected to regain its vanillin advantage. In addition, the Thai project also includes leaf alcohol and coolants and other products, which is expected to meet higher-than-expected demand in the field of e-cigarettes.

Synthetic biology empowers natural spices, the company has long-term imagination space companies to use synthetic biology to empower the manufacture of natural spices, has achieved certain results in individual products, and has the possibility of technology spillover. The cost of related products is expected to be greatly reduced and the market is expanding rapidly.

Earnings forecast, valuation and rating

Considering that the recovery of downstream demand is slightly lower than expected, we estimate that the company's revenue in 2023-25 will be RMB 1.01 billion (the previous value is RMB 1.15 billion), the corresponding growth rate will be-3%, 48% and 23%, respectively, and the net profit of return to the mother will be RMB 1.1 million, RMB 180 million (the previous value is RMB 1.3 million / 270 million). The corresponding growth rates are-20%, 68%, 39%, 1.30, 2.18, 3.04 and 23%, respectively, for CAGR. In view of the company's obvious advantages in the field of natural fragrances, synthetic biology empowered spices are expected to break through. with reference to comparable company valuations, we give the company 20 times PE in 2024, corresponding to a target price of 43.60 yuan in 2024, maintaining a "buy" rating.

Risk hint: Thailand base construction progress is not as expected risk, market development is not as expected risk, e-cigarette regulatory risk, the main income comes from overseas risk, synthetic biology technology development is not as expected risk