Core viewpoints

In the first three quarters, the company achieved revenue of 325 million yuan, an increase of 18.88% over the same period last year. After the formal implementation of the new national standard for infant powder, the approval progress of some small and medium-sized customers and overseas customers lagged behind, and the switching was relatively slow. In the third quarter alone, the company achieved revenue of 126 million yuan, an increase of 23.48% over the same period last year, and the growth rate was higher than that in the first half of the year. Small and medium-sized customers and overseas customers have gradually completed the switch. The product structure improved compared with the first half of the year, and the cost remained under control. the company achieved a net return rate of 18.60% in the first three quarters, down 9.90pcts from the same period last year, and 20.28% in the third quarter, down 6.99pcts from the same period last year, narrowing down compared with the first half of the year.

The new national standard will be implemented in 2023, and the demand for the company's products is expected to continue to increase. The main patent of DSM ARA has expired, and overseas customers have two supplies and three supplies. The company is gradually carrying out market development activities, overseas market sales can be expected. HMOs has been approved for infant formula and children's milk powder for the first time in China, and the company continues to layout and promote approval, which is expected to open up new growth space.

Event

On October 27, the company released its third quarterly report for 2023: revenue in the first three quarters was 325 million yuan, an increase of 18.88% over the same period last year, and net profit was 60 million yuan, down 22.41% from the same period last year. Non-return net profit was 41 million yuan, down 25.26% from the same period last year. Of this total, the revenue in the third quarter was 126 million yuan, an increase of 23.48% over the same period last year, and the net profit of returning to the mother was 26 million yuan, down 8.17% from the same period last year, deducting 18 million yuan from the same period last year, down 4.06% from the same period last year.

Brief comment

Revenue growth increased in the third quarter, and customers gradually completed the switching of the new formula in the first three quarters, the company achieved revenue of 325 million yuan, an increase of 18.88% over the same period last year. Due to the formal implementation of the new national standard for infant formula in February 2023, the approval progress of some small and medium-sized customers and overseas customers lagged behind and the switching was relatively slow in the first half of the year, which affected the company's sales. In the third quarter alone, the company achieved revenue of 126 million yuan, an increase of 23.48% over the same period last year, and the growth rate was higher than that in the first half of the year. Small and medium-sized customers and overseas customers have gradually completed the switch.

The product structure has been improved and the cost has remained stable.

In the first three quarters, the company's gross profit margin fell 3.71pcts to 41.18% year-on-year, of which the gross profit margin in the third quarter fell 2.52pcts to 41.39% year-on-year, but improved from the first half of the year. The change in customer structure caused by overseas revenue fluctuations and price adjustment factors have an improved impact on gross profit compared with the first half of the year.

In terms of expenses, the expenditure remained stable in the first three quarters, and the expense rate decreased under the trend of revenue growth. The company's sales expense rate in the first three quarters was 5.99%, down 1.12pcts from the same period last year, of which the sales expense rate in the third quarter was 5.38%, down 1.23pcts from the same period last year. The rate of management expenses in the first three quarters was 9.08%, down 1.38pcts from the same period last year, and 8.42% in the third quarter alone, down 2.23pcts from the same period last year. R & D expenditure slowed slightly, with the R & D expenditure rate of 8.68% in the first three quarters, down 0.95pcts from the same period last year, of which the R & D expenditure rate in the third quarter alone decreased by 3.19pcts to 8.23%. The combination made the company achieve a net interest rate of 18.60% in the first three quarters, down 9.90pcts from the same period last year, and 20.28% in the third quarter, down 6.99pcts from the same period last year; 12.64% in the first three quarters, down 7.46pcts from the same period last year, 14.48% in the third quarter alone, down 4.16pcts from the same period last year, and the profit margin decreased somewhat compared with the first half of the year.

DSM patent expires, HMOs is expected to open space

In overseas markets, DSM patent protection expires in June 2023, and overseas downstream customers have also increased their suppliers to ensure the safe demand for raw material supply. The company continues to actively develop customers in overseas markets, with a new brand image to participate in international exhibitions with global influence in France, Switzerland, the Netherlands and so on. The supply of core major customers has broken through the original limit, and cooperation has been gradually deepened. Dealers focus on the development of Europe, America and Southeast Asian markets, European market dealers have achieved the first commercial order breakthrough. At the same time, the company takes ARA as the cooperation breakthrough to gradually promote the evaluation and access of the company's algae oil DHA products in the field of baby matching. In addition to the baby distribution business, we are also actively promoting cooperation with international customers in the field of dietary supplements to open up a broad space for overseas markets. In terms of new products, HMOs was approved for infant formula and children's milk powder for the first time in China on October 7. The company has actively distributed the HMOs market, and has successfully passed the biosafety review of the Ministry of Agriculture and entered the food safety review of the Health Commission through product research and development, regulatory access, customer development and production capacity construction. At the same time, the company has cooperated with core customers to carry out efficacy research to prepare for the upgrading of infant formula.

Profit forecast: from 2023 to 2025, the company is expected to achieve an income of 5.19,6.68 and 839 million yuan, and a net profit of 1.07,1.40 and 176 million yuan, corresponding to 29X, 22X and 18X for 23-25 years, maintaining the "overweight" rating.

Risk Tips:

1. The risk of a sharp rise in the price of raw materials: the raw materials needed by the company are mainly glucose, yeast powder, lactose, corn syrup, etc., and the supply is affected by many factors such as global economic and political environment, war, region, climate and so on. A sharp rise in prices may adversely affect the company's production costs and profitability.

2. Overseas customer expansion is lower than expected: DSM patent expires, the company has more room for overseas market development. If the market development is adversely affected by changes in overseas national policies or disputes over competitors, customer expansion is hindered, and the company's performance growth may fall short of expectations.

3, the market competition aggravates the risk: the foreign DSM company maintains the leading position in the world, if the competitor intensifies the competition by reducing the price, it will cause the risk of the price fluctuation of the company's products and reduce the company's profit level.

4. On September 6, 2023, Hubei Securities Regulatory Bureau issued a warning letter to Jiabiyou Biotechnology (Wuhan) Co., Ltd., Yi Dewei, Wang Huabiao and Yi Huarong, mainly due to the inaccurate disclosure of KuaiBao's performance in 2022 on February 28, 2023, and the lack of timely review and disclosure of related transactions formed by the capital increase to the participating company Famako Nutrition Co., Ltd. on June 21, 2021. The company said that it will further strengthen the study of the measures for the Administration of Information Disclosure of listed companies and relevant laws and regulations to avoid the recurrence of such incidents. Receiving the warning letter will not affect the normal operation and management activities of the company.