Open up the technology chain and mature the industrialization model. 1) Technical side: Control the core technology of synthetic biology and cooperate closely with universities and research institutes. The company has opened up the two major production processes of “fermentation method and enzyme method”. At the same time, it has established long-term cooperative relationships with scientific research institutions such as the Tiangong Institute of the Chinese Academy of Sciences and the Institute of Microbiology, creating many examples of industry-university-research cooperation, and continuously cooperating to develop new products. 2) Process side: The industrial expansion process is mature. The company has many years of fermentation production experience, and has achieved 10,000-ton production of L-alanine and L-valine. Fermentation products have strong process synergy, and the company can migrate and replicate previous experiences to speed up the implementation of new products. 3) Application side: Excellent product selection strategy and high quality customer resources. Select biomedical products that have been proven by the market, have low cost, and are less difficult to promote. The company has long cooperated with customers such as BASF, Ajinomoto, DSM, and Evonik to help introduce new products.
L-alanine has become a global leader, and valine drives performance growth. The company broke through the anaerobic fermentation method of L-alanine for the first time in the world. The cost was reduced by about 50% compared to the enzymatic method, and the global market share was over 60% in '22. After the company went public, L-valine was further developed. The L-valine production capacity utilization rate in '22 has reached 123.15%, driving rapid performance growth. Revenue +48.7%/+36.7% YoY in '22/'23, net profit to mother +90.2%/+40.8% YoY, and net interest rate to mother reached 22.56%/23.25%.
Breaking through many new products, the cost advantage is remarkable. The company has deployed new products such as malic acid, succinic acid, 1,3-PDO, and arginine. As of June '23, the company had a total production capacity of 58,000 tons, and the total production capacity will reach 332,000 tons after the planned project is implemented. With mature fermentation processes, the company's new products all have cost advantages and are expected to be promoted rapidly. According to our estimates, 1) the theoretical cost of L-valine is as low as 0.97 million yuan/ton, which is 35% lower than other companies' fermentation methods; 2) the theoretical cost of succinic acid in the company's fermentation method is as low as 0.69 million yuan/ton, which is 40,000 yuan/ton lower than the maleic anhydride hydrogenation method and 0.56 million yuan/ton lower than other companies' fermentation methods; 3) The theoretical cost of the company's sugar method PDO is about 0.95 million yuan/ton, which is 0.99 million yuan/ton lower than the glycerol method.
Investment advice: The company lays out a number of new products and rapidly expands its market space. We expect the company's net profit to be 4.51/6.74/865 million yuan respectively in 23-25 years, with a PE valuation of 35 times over 24 years, corresponding to a 24-year target price of 149.64 yuan. First coverage, giving a “buy” rating.
Risk warning: Project commissioning falls short of expectations, raw material costs fluctuate, demand falls short of expectations, exchange rate fluctuations.