Meihua Biotech: A leading amino acid company, leading the world in production and sales. The company is a full-chain synthetic biology company specializing in amino acid products. The main products are lysine, threonine, valine, monosodium glutamate, i+g, xanthan gum, etc. In 2022, the company achieved operating income of 27.937 billion yuan, an increase of 21.14% over the previous year, and achieved net profit of 4.406 billion yuan, an increase of 83.42% over the previous year.
Amino acid industry: Food price increases and soybean meal reduction alternatives are implemented, and Su and Lai ushered in room for an upward boom. The global amino acid market has developed over the years, with demand reaching 8.62 million tons in 2021, with lysine and threonine accounting for the highest share of demand. Future industry demand is guided by soybean meal reduction and substitution policies, and demand for industrial amino acids represented by SU and lysine will usher in long-term growth; on the supply side, the production capacity pattern of su and lysine shows a leading trend. In 2021, Meihua Biotech ranked first in the world with a production capacity of one million tons of lysine and 300,000 tons of threonine, and with the commissioning of the Tongliao threonine project, the company's leading amino acid position will be further consolidated.
In addition, in the field of small amino acids, the company already has a complete medical amino acid product line. As the aging population intensifies, medical amino acids will gradually expand in the long term, and it is expected that the company's second growth curve will be built.
Flavoring agent industry: The monosodium glutamate industry presents an oligopoly, and the I+G market ushered in rapid development. China is the world's largest producer and consumer of MSG. Production and demand reached 2.43 million tons and 2.44 million tons respectively in 2022. Growth in food processing, especially prepared dishes, will strongly drive demand for MSG. On the supply side, the MSG market concentration is high. In 2021, Meihua BioMSG's production capacity is second in the industry; I+G, also known as “powerful monosodium glutamate,” can be mixed with MSG, and the dosage is about 2-5% of monosodium glutamate. Using 3%, the demand for I+G compound is estimated to be about 70,000 tons. Compared with I+G's demand of only 20,000 tons in '22, there is plenty of room for future development.
Colloidal polysaccharide industry: The downstream is driving the xanthan gum boom upward, and the polysaccharide market space is broad. Xanthan gum is divided into petroleum grade and food grade. Market demand has increased dramatically in recent years due to the Russian-Ukrainian conflict. In 2022, the global xanthan gum market reached 1.567 billion US dollars, an increase of 102% over the previous year; downstream Prulan polysaccharide can replace gelatin as a novel vegetable capsule material, and trehalose can be used as a next-generation moisturizing factor in the field of daily chemicals, and there is broad scope for the future.
Deeply cultivate the corn deep processing industry chain and actively lay out the field of synthetic biology. (1) Leading scale: The company's production capacity is leading in the industry. With the continuous increase in industry concentration, the competitive advantage of Meihua Biotech's leading enterprises will gradually become prominent; (2) R&D advantages: The company has been in the field of synthetic biology since 2010, and has achieved many internal breakthroughs in platform construction, strain iteration, technology reserves, etc., and has established close ties with top domestic universities and research institutes. At the same time, it continues to innovate in the field of industrialization expansion, and the technology research and development advantages are outstanding; (3) High dividend rate: the company's dividend rate and dividend rate will both reach high levels in 2022 3.93%, 26.72%
Investment advice: The company is a leading global amino acid company with outstanding scale and cost advantages. We expect the company's net profit to be 32.13, 38.95, and 4.636 billion yuan respectively in 2023-2025, EPS is 1.09, 1.32, and 1.57 yuan respectively, and the PE corresponding to the current price (2023/12/28) is 9X, 7X, and 6X, respectively. We are optimistic about the company's future growth space, covered it for the first time, and gave it a “recommended” rating.
Risk warning: major product fluctuations and increased market competition, large fluctuations in raw material prices, environmental risks, etc.