In the first three quarters of 2023, under the influence of overseas customers going to the warehouse, the company realized operating income and return net profit of 470 million yuan and 69.001 million yuan, compared with-12.3% and-30.5% of the same period last year. Q3 profit was slightly lower than we expected due to the decline of product gross profit margin and the increase of expenses. In the medium and long term, the completion and commissioning of the Thai factory and the industrialization of the natural flavor enzyme catalytic process are expected to help the company achieve a rise in volume and profit, and we continue to be optimistic about the growth potential of the company. Considering the downward trend of spices, we downgrade the company's 2023 earnings forecast for 2025 to 1501,220 million yuan. Considering the endogenous growth potential brought about by the company's capacity expansion and process innovation, we maintain the company's target price of 45 yuan (corresponding to 2024 23xPE) and maintain the "buy" rating.

Revenue and deduction of non-profit continued to increase in the third quarter, while profit margins declined. In the single quarter of Q3, the company achieved operating income of 190 million yuan, + 19.0% from the previous quarter and + 10.2% from the same period last year. The net profit of deducting non-return to the parent was 25.059 million yuan, 8.8% from the previous quarter and 4.8% from the same period last year. Q3 single-quarter gross profit margin is 28.2%, month-on-quarter-3.2pcts, we speculate that it may be affected by the product sales structure; at the same time, due to the period expense / asset impairment loss / investment loss increased month-on-month, the company's net profit rate was-3.7pcts to 12.0%, resulting in a decline in the company's overall profitability in the third quarter. As the demise of overseas customer inventory is coming to an end, we are optimistic that the company's high-end spice variety orders will resume in the context of rising downstream demand, and the overall performance is expected to continue the growth trend.

Thailand projects have been carried out in an orderly manner, and overseas capacity expansion has opened up room for growth. According to the announcement of the contractor Zhejiang Construction Investment Group, the first phase of the Thailand base project of the company has started smoothly. According to the company announcement, the first phase of the project in Thailand has a design capacity of 1750 tons / year, mainly planning to produce high-end varieties such as vanillin / coolant. The company expects the project to be completed and put into production by the end of 2024. We are optimistic that after the completion and commissioning of the first phase of the Thailand project, the overall revenue and profit scale of the company will reach a new level, and at the same time bring further optimization of the product structure.

The enzyme catalysis process is progressing smoothly, and the synthetic biotechnology opens a new chapter in the company's spice production. According to the company announcement, the development of the process of enzyme-catalyzed preparation of cinnamic acid / vanillin is progressing smoothly. the company expects that a series of products for the preparation of cinnamic acid by enzyme catalysis will be put into production in the second half of 2023, and the process of enzyme-catalyzed preparation of vanillin is still in the laboratory stage. We are optimistic that the company's continuous breakthroughs in synthetic biotechnology will lead to a continuous increase in gross profit margins of natural flavor products and achieve market share expansion through cost advantages.

Risk factors: large fluctuations in raw material prices; environmental protection issues and production safety accidents; international trade frictions; exchange rate fluctuations; Thailand project construction schedule is not as expected; risk of new technology and new product development; industry competition intensifies; product classification standards change.

Profit forecast, valuation and rating: we are optimistic about the growth space brought by the completion and commissioning of the Thai factory of the medium-and long-term company and the industrial application of natural flavor enzyme catalytic process, considering the downward trend of spice boom, we downgrade the company's profit forecast for 2023 to 2025 to RMB 1.015 billion. We select comparable company Aipu shares, Xinhua shares, Huaye spices and Xinhe Cheng, which are similar to the company's main business, as comparable companies. According to Wind, we unanimously expect the average valuation of comparable companies to be 14xPE and 9xEV/EBITDA in 2024. Considering the endogenous growth potential brought about by capacity expansion and process innovation, the company, as a natural flavor leader, is expected to maintain high growth after the landing of the project and enzyme catalysis process in Thailand (comparable company Wind unanimously expects the average CAGR of 2023-2025 net profit to be 26.3%, we forecast that the company's 2023-2025 net profit CAGR will be 44.9%), and we maintain the company's target price of 45 yuan (corresponding to 23xPE and 15xEV/EBITDA in 2024). Maintain a "buy" rating.