Event: Huakang released its three-quarter report in 2023, with revenue of 2.04 billion yuan in the first three quarters of 2023, + 28.6% year-on-year, and net profit of 280 million yuan, + 7.9% year-on-year. In the single quarter of 2023Q3, the company achieved revenue of 670 million yuan, + 5.5% year-on-year, and net profit of 90 million yuan,-20.4% compared with the same period last year.
The gross profit margin has risen steadily, and the level of fee control has remained steady. 2023Q3 gross profit margin was 25.3%, up 0.6 ppm from the same period last year; net profit margin was 13.4%, down 4.3pp from the same period last year. The gross profit margin of 2023Q3 is the highest in the past seven quarters, and the month-on-month increase is mainly due to the optimization of the product structure brought about by the increase in the proportion of crystal sugar alcohol with higher gross profit margin and the decrease in the proportion of liquid sugar alcohol. The net interest rate rose slightly from the previous month and declined from the same period last year, mainly due to an investment income of about 7 million in the same period last year. The 2023Q3 sales / management / finance / R & D expense rates are 1.3%, 2.7%, 0.1%, 4.7%, respectively, compared with the same period last year-0.1/-5.0/+1.5/+0.2pp. The company's sales and management expenses remain stable, and the rising rate of R & D expenses is mainly due to the advance layout of the new factory in Zhoushan and increased R & D efforts.
Technological transformation to improve the matching of raw materials, Zhoushan factory increased investment. The matching of raw material xylose determines the profitability of xylitol. In May 2022, the company started to build a "green intelligent transformation project with an annual output of 30,000 tons of D-xylose", which has entered the stage of trial production. it is expected that the competitive advantage of the company's xylitol products will be further strengthened.
At the same time, the company added 10,000 tons of maltodextrin and corn germ oil extraction capacity, which is expected to thicken the performance of the new Zhoushan plant again. On October 24, 2023, the company plans to invest nearly 148 million yuan and 99.6 million yuan respectively to build 100000 tons of maltodextrin and 100000 tons of corn germ oil extraction capacity.
Convertible bonds have been approved and the layout of production capacity has been added. The company's convertible bond project has been examined and approved by the Shanghai Stock Exchange to provide solid financial support 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. At present, production capacity is the main bottleneck of the company's development at this stage. In 2022, the utilization rate of crystal sugar and alcohol capacity of the company is more than 95% and 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 in Q3 next year, and the company will vigorously expand domestic customers and superimpose the long-term trend of export substitution of overseas products. It is optimistic that the production capacity of the new plant will be quickly digested and the performance will be released quickly.
Profit forecast and investment advice. Huakang shares as a functional sugar alcohol leader, continue to enrich and optimize the product structure, extension and extension layout of the new track, high gross margin single product production capacity continues to land, excellent growth. Therefore, the company is given a valuation of 14 times in 2024, corresponding to the target price of 27.3 yuan, covered for the first time and given a "buy" rating.
Risk tips: the risk of depressed market demand; the risk of raw material supply and price fluctuations; the risk of exchange rate fluctuations; the risk of less than expected production capacity.