Main points of investment

2023Q1-Q3 achieved revenue of 2.042 billion yuan, an increase of 29% over the same period last year. 1) in the first three quarters, 2023Q1-Q3 achieved revenue of 2.042 billion yuan, an increase of 29% over the same period last year, a net profit of 275 million yuan, an increase of 8% over the same period last year, and a deduction of 273 million yuan for non-net profit, an increase of 19% over the same period last year. 2) in the third quarter alone, 2023Q3 achieved an income of 673 million yuan, an increase of 5% over the same period last year, and a net profit of 90 million yuan. We expect the revenue growth to be mainly due to the fact that crystal alcohol products such as sorbitol have been in short supply since the beginning of the year, and the company has been able to expand domestic customers ahead of schedule for the new plant in Zhoushan, with 68 new domestic customers since the beginning of the year. Q3 domestic revenue increased by 24% compared with the same period last year. We expect the slowdown in Q3 revenue growth in the single quarter is mainly due to the pressure on the average export unit price of products such as Q3 xylitol. According to the General Administration of Customs, the average export unit price of xylitol fell by about 4% from July to September compared with the same period last year.

The gross profit margin has risen steadily, and the rate of R & D expenditure has risen significantly.

In terms of gross profit margin, 2023Q3 achieved a gross profit margin of 25.3% in a single quarter, the highest level in nearly seven quarters, with a sharp rise in 1.3pcts compared with the previous quarter. We expect it to be mainly due to the optimization of the product structure. In terms of expense rate, the 2023Q3 single-quarter sales expense rate is 1.3%, and the management expense rate is 2.7%, with year-on-year changes in 1pcts. The R & D expenditure rate of 2023Q3 in a single quarter is 5.4%, which is nearly 3pcts compared with the same period last year. We expect it to be mainly due to the company's advance layout and increased R & D efforts for the new plant in Zhoushan. In terms of net interest rate, 2023Q3's net interest rate is 13.4%, slightly higher than the previous month, and lower than the same period last year. In addition to the impact of the above expense rate, it is mainly due to an investment income of about 7 million in the same period last year.

The convertible bond project has been examined and approved by the Shanghai Stock Exchange, and the Zhoushan new factory has been added to the building block. 1) the company's convertible bond project has been examined and approved by the Shanghai Stock Exchange, providing a solid capital endorsement for the continuous landing of new production capacity in Zhoushan. The new production capacity of the convertible bond project is expected to be 1 million tons, covering high gross profit products such as sorbitol and aloxetose. Production capacity is the bottleneck of the company's development at this stage. In 2022, the utilization rate of crystal sugar and alcohol capacity has exceeded 95%, which is close to saturation, so it is urgent to build new capacity. The production capacity of the new plant is expected to be gradually landed next year. With the current company expanding domestic customers well, we are optimistic that the production capacity of the new plant will be quickly digested and the performance will be released quickly.

2) add 100000 tons of maltodextrin and corn germ oil extraction capacity, which is expected to thicken the performance of the new Zhoushan plant again. The company announced that it intends to invest nearly 1.48 billion yuan in the construction of 100000 tons of maltodextrin and 100000 tons of corn germ oil extraction capacity, respectively. According to the company announcement, it is expected to increase annual income by 444 million million yuan, and the total new profit will exceed 440 million million yuan.

Profit forecast and valuation

The company's main business is sugar substitute manufacturing. We estimate that in 2023-2025, the company will achieve an income of RMB 2608Universe 30.10Mab, an increase of 18.54%, 15.41%, 25.42%, and an estimated net profit of 3.65%, 445, and 566 million yuan, with a year-on-year growth rate of 14.47%, 21.64%, 27.41%, corresponding to PE of 14-12-9. Considering that the sugar-free era in China has just arrived, the demand for sugar substitute is in the ascendant, combined with the company's broad prospects and certain competitiveness, to maintain the "buy" rating.

Risk tips: product price fluctuations, exchange rate fluctuations, shipping cost fluctuations, intensified market competition, approval progress is not up to expectations, etc.