Event: The company released the 2023 performance report and 2024Q1 performance forecast. In 2023, the company achieved total revenue of 4.823 billion yuan, an increase of 26.24% over the previous year; net profit to mother was 941 million yuan, an increase of 128.56% over the previous year. Looking at Q4 alone, the company achieved net profit of about 300 million yuan, an increase of 279.18% over the previous year. 2024Q1 expects to achieve net profit of 330-370 million yuan, an increase of 88.09%-110.89% year-on-year and 9.85%-23.16% month-on-month. The company continued to achieve rapid profit-side growth mainly due to: 1) in 2023 and 2024Q1, demand in the downstream antibiotic market in the industrial chain continued to recover, and the volume and price of the company's intermediate products rose sharply to varying degrees; 2) synthetic biology empowered the green economy, and the company continued to reduce costs and increase efficiency; 3) the company's interest expenses decreased, exchange earnings increased, and financial expenses declined.

The technology platform collaborates efficiently with the industrialization base to continue to export new varieties, and the implementation of natural products is expected to bring new volume. According to the company's announcement, the subsidiary Ruikang Biotech is responsible for synthetic biology selection, in vivo/in vitro metabolic pathway construction, and the R&D stage before the trial. After success, the process package was delivered to the Yili and Gongliu production bases in Chuanning. The industrialization base then carried out further 100-kilogram intermediate testing, large-scale fermentation, separation and purification until the finished product and development and application were finally achieved. In terms of biosynthetic biotechnology pathways in vivo, Ruikang currently has 5 types of high-quality chassis strains: Escherichia coli, yeast, streptococcus subtilis, and Corynebacterium glutamate; in vitro synthetic biotechnology pathways, supported by a huge enzyme library, it currently has 7 million+ autonomous IP enzyme libraries, 2000+ physical enzyme toolboxes, virtual screening, and full-scale simulation. Various metabolic drivers can be used to promote product synthesis. Overall, the company's synthetic biotechnology platform is strong, and it is expected that it will continue to deliver new types of process packages. Chuanning's industrialization base has five major advantages, including fermentation technology and large-scale production, and it is expected that new varieties will move to the large-scale production stage one after another. According to the company's announcement, the production capacity project under construction is divided into two phases. The main construction is a flexible production base that can produce 300 tons of bisabolol, 300 tons of 5-hydroxytryptophan, 0.5 tons of ergothione, 10 tons of ecdoine, 5 tons of rhododine, 10 tons of nocarone, 50 tons of melatonin, 500 tons of plant ammonia and other raw materials. According to the company's investor relations records, the first phase of the project will enter trial production in December 2023. The second phase of the project will start in 2024 and be completed in 2025.

AI enables the accelerated formation of new quality productivity, and the company's overall R&D and industrialization capabilities are expected to be further enhanced. According to the company's announcement, in February 2024, the company reached a strategic cooperation with Jinyi Technology, which mainly includes: 1) reaching exclusive cooperation on the application of artificial intelligence to biological antibiotic intermediates (erythromycin thiocyanate, cephalosporin intermediates, penicillins, etc.); 2) Ruikang Biotech and Jinyu Technology reached cooperation in generative AI-assisted synthetic biological manufacturing; 3) the two sides selected key R&D varieties to jointly develop key varieties and achieve industrialization through the establishment of a joint venture. According to “Application of Artificial Intelligence in Synthetic Biology”, since the 21st century, intersectional research between AI and synthetic biology has driven continuous major breakthroughs in the fields of component engineering, circuit engineering, metabolic engineering, and genomic engineering, which can fully empower the development and industrialization of chassis cells. We believe this move is expected to help optimize and upgrade the fermentation industry for the company's antibiotic intermediates and other products, drive the company to develop new quality productivity as soon as possible, and continue to break through into the field of advanced biological manufacturing.

Investment advice:

Buy-A investment rating, 6-month target price of 10.58 yuan. We expect the company's revenue growth rates from 2023 to 2025 to be 26.2%, 13.3%, and 14.4%, respectively, and the net profit growth rates will be 128.6%, 19.8%, and 23.2%, respectively, with outstanding growth (2023 is the company's performance report data); for the first time, the 6-month target price is 10.58 yuan, which is equivalent to a dynamic price-earnings ratio of 2024 25.

Risk warning: risk of price fluctuations in the antibiotic intermediate market; risk of fluctuations in raw material supply and price; risk of failure in developing new products and falling short of expectations in commercialization.