Andisu released its 2023 annual report: annual revenue of 13.184 billion yuan, YoY -9.26%, net profit to mother of 52 million yuan, YoY -95.82%, and EPS of 0.02 yuan. The company plans to distribute a cash dividend of 0.6 yuan (tax included) for every 10 shares.

The company's performance declined due to falling product sales prices and rising raw material and energy costs. On the revenue side, the average market price of the company's main product, methionine, declined in 2023 compared to 2022, leading to a slight decline in the company's revenue. On the profit side, the company's gross margin fell 7 percentage points to 21% year over year due to falling product prices, as well as asset impairment and related restructuring costs (mainly due to impairment preparation and restructuring costs due to the closure of the Commentry solid methionine production line, Innov'ia's old plant, and the Kallo plant in Belgium), and the company's net profit declined sharply.

The company's performance has gradually improved in the second half of 2023, and there was a marked recovery in the fourth quarter. Due to improvements in the market supply and demand pattern, the market price of methionine, the company's main product, has rebounded since the second half of 2023. At the same time, the positive impact of falling raw materials and energy prices on the company's variable costs began to show in the 3rd quarter of 2023, driving the company's performance improvement. The company's net profit for the 2023Q4 single quarter was 87 million yuan, a significant improvement from -68 million yuan in 2023Q3. We believe that with the bottom of the methionine market price recovery, the company's profitability will gradually return to a reasonable level in the future.

Methionine production capacity continues to increase, consolidating the leading position. ① The company currently has 2 methionine production platforms, located in Europe and Nanjing, China. Since the 3rd quarter of 2021, the European production platform expansion project has successfully increased annual production capacity by a total of 80,000 tons. The production platform in Nanjing, China now has a total production capacity of 350,000 tons, making it one of the largest liquid methionine production platforms in the world. ② In order to meet global methionine demand and further strengthen the company's leading position in the methionine industry, the company built a new solid methionine plant in Quanzhou, with an annual production capacity of 150,000 tons. The Quanzhou project started in March 2024 and is expected to be put into operation in 2027.

We expect the company to further expand production capacity through continuous industrial investment and continue to maintain its leading position in the world's first tier in the future.

Company profit forecast and investment rating: The company is a leading enterprise in the global animal nutrition industry and the second largest methionine manufacturer in the world. It can simultaneously produce solid and liquid methionine. At the same time, the company actively implements the “double pillar” strategy, continuously consolidates its leading position in the methionine industry and accelerates the development of the specialty products business. Based on the company's 2023 annual report, we adjusted the company's profit forecast for 2024-2026 accordingly. We estimate that the company's net profit for 2024-2026 will be RMB 3.34, 7.11, and RMB 1,044, respectively, and EPS of 0.12, 0.27, and 0.39 yuan, respectively. The P/E values corresponding to the current stock price will be 67, 32, and 22 times, respectively. Maintain a “Highly Recommended” rating.

Risk warning: product prices are falling; the industry is investing new production capacity too fast; demand in the feed industry is falling.