Event: the company released its three-quarter report in 2023, with revenue of 474 million yuan in the first three quarters of 2023, down 12.33% from the same period last year, and net profit of 69 million yuan, down 30.45% from the same period last year, deducting 63 million yuan from non-net profit, down 30.89% from the same period last year. Among them, the income in the third quarter was 187 million yuan, up 10.16% from the same period last year, and the net profit was 23 million yuan, down 27.04% from the same period last year. The non-net profit was 25 million yuan, an increase of 4.81% over the same period last year, and the performance was under short-term pressure.

Short-term performance under pressure, deducting non-net profit month-on-month repair. During the reporting period, the company's natural spices were affected by overseas destocking, and sales declined, resulting in a decline in corresponding income and a decline in the company's performance compared with the same period last year. From a single quarter point of view, the company's revenue and deducted non-net profit increased in the third quarter, the performance continued to repair, overseas inventory has been digested, looking forward to the fourth quarter results are expected to continue to improve. The gross profit margin of the third quarter is 28.15%, the net profit rate of Q2 is 12.03% lower than that of Q2, and the net profit margin of Q2 is 12.03%. It is speculated that it is mainly due to the decline in revenue from the company's natural flavor business, which has a relatively higher gross profit margin, while the increase in the proportion of coolant revenue with relatively low gross profit margin.

Flavors and fragrances have the characteristics of multiple varieties, sketches and fast delivery, and the concentration of the industry is expected to be improved. The company is the main manufacturer of middle and high-end spices in China, with more than 160 kinds of products. Based on the characteristics of multi-variety, sketches and fast delivery in the flavor and fragrance industry, the superimposed environmental protection policy is stricter, and it is expected that small and medium-sized enterprises and backward production capacity will be gradually eliminated in the future. the scale advantage of leading enterprises will be gradually enhanced. According to data from Grand ViewResearch, General Administration of Customs and head Leopard Research Institute, the global market revenue of flavors and fragrances has increased from US $27.6 billion in 2018 to US $29.2 billion in 2022. The overall industry shows a trend of transferring to the markets of developing countries, among which the Asian market has the highest growth rate.

The Thai factory is progressing smoothly, opening up room for long-term growth. The company plans to build a production base in Thailand, planning 1000 tons of vanillin, 200tons of oak moss, 100tons of benzaldehyde, 50tons of benzyl alcohol, 100tons of methyl cinnamate, 150tons of coolants, 150tons of leaf alcohol and other flavors.

Maintain the "overweight" investment rating. Based on the decline in revenue from the company's natural spices sector, the company has lowered its performance forecast. It is estimated that the company's net profit from 2023 to 2025 will be 1.0,1.6 and 210 million yuan respectively, and its EPS will be 1.24,1.92,2.63 yuan respectively. The current stock price corresponds to 25.4,16.3,11.9 times of PE, maintaining the "overweight" investment rating.

Risk hint: new product development is not as expected, environmental protection, capacity construction is not as expected.