Incidents:
The company released its report for the third quarter of 2023. In the first three quarters of 2023, the company achieved operating income of 1,614 billion yuan, a year-on-year increase of 22.77%, net profit of 95 million yuan, a year-on-year increase of 93.80%, a net profit of 93 million yuan, a year-on-year increase of 88.60%, a gross profit margin of 16.76%, a year-on-year increase of 3.47pct, a net profit margin of 6.00%, and a year-on-year increase of 2.13pct.
In 2023Q3, the company achieved operating income of 641 million yuan, an increase of 40.98% over the previous year, and net profit of 44 million yuan, an increase of 162.82% over the previous year.
reviews
The main business grew steadily, and profits continued to improve. On the revenue side, the company experienced significant year-on-year growth in the third quarter, +24% month-on-month. Looking at the split business, monosodium glutamate, etc., chicken extract, cooking wine, etc., flour/organic fertilizer, etc., achieved a year-on-year ratio of +26.12%/+30.55%/+19.96%/-48.19%/-8.17%. Products such as MSG and chicken essence, which account for a relatively large share of business, maintained a growth of more than 25%, helping the company achieve strong performance in its basic market. We expect this to be due to the company's continued strength on the channel side. Among them, online sales increased 282% year on year, and the number of dealers increased by 5 to 2763. On the profit side, since this year, the company's profit has shown a quarterly upward trend. The 2023Q1-Q3 gross margin was 15.75% /16.85%/17.41%, respectively, +3.10/+3.95/+3.17pct, and the net profit margin was 4.84%/5.81%/6.98%, year-on-year +1.09/+1.81/+3.12pct. We believe this is mainly due to product structure optimization and lower raw material costs. Looking ahead, with the development of multiple channels, the company is expected to rely on multiple categories to continue to increase its market share in the downstream market and drive long-term stable development.
Build a second growth curve that can be expected in the future. Through its wholly-owned subsidiary Hangzhou Lianhua Technology Innovation Co., Ltd., the company focuses on science and technology innovation business and actively explores the second growth curve. The subsidiary is actively introducing partners such as powerful manufacturers in the field of intelligent computing power to accelerate the development of computing power business. On October 29, the subsidiary signed a “Joint Venture Agreement” with Hangzhou Xinglin Technology Co., Ltd. The former accounts for 80% of the investment. The joint venture will focus on laying out the computing power leasing market and invest in the construction of world-class and leading domestic intelligence centers at major computing power nodes in China. As the US government prohibits Nvidia from selling board cards to Chinese companies, we believe there will be an imbalance between computing power supply and demand in the short term, driving up rental prices, and companies with a first-mover advantage will benefit fully.
Profit forecast: The company's basic market is developing steadily. Currently, it is actively laying out the computing power leasing market to create a second growth curve. It is expected to provide the company with more room for imagination in the future. We expect the company to achieve net profit of 1.23/ 5.03/800 million yuan from 2023-2025, corresponding to 97/24/15 times PE. PE was valued at 30 times the 2024 profit, with a target price of 8.4 yuan. Coverage for the first time, and a “buy” rating was given.
Risk warning: downstream demand falls short of expectations, profit forecasts and valuation judgments fall short of expectations.