Key points of investment:

Mainly engaged in amino acid products, leading production capacity in the world. The company's products are mainly amino acids, taking into account the development of multiple categories, and have formed a business structure centered on various advantageous products such as animal nutritional amino acids, flavoring products, human medical amino acids, and colloidal polysaccharides. As of 2022, the company's production capacity of lysine and monosodium glutamate reached one million tons and 300,000 tons of threonine respectively. The production capacity of threonine and lysine all ranked first in the industry. Other starch by-products, fertilizer products, colloidal polysaccharides, and pharmaceutical products all ranked among the highest in the industry.

Global demand for amino acids is growing steadily, and the reduction and substitution of soybean meal is driving the demand for adding amino acids to feed.

According to Imarc Group data, global amino acid production exceeded 10 million tons in 2021. It is expected that global amino acid production will maintain a compound annual growth rate of 4.7% from 2022 to 2027, production will reach 13.8 million tons in 2027, and demand in the global amino acid market will grow steadily. At the same time, reducing the amount of corn and soybean meal in feed requires increasing the amount of amino acids added to feed, and the soybean meal reduction plan is expected to further increase the demand for feed amino acids.

The traditional main business consolidated its advantages in scale and cost, and the multi-product layout continued to gain strength. 1) Adhere to continuous investment in R&D, bring about continuous optimization of technical indicators and improvement of conversion efficiency, and optimize process processes to achieve cost reduction. 2) The company has an integrated production line for comprehensive utilization of resources to achieve hierarchical recycling of energy to further reduce costs. 3) The company's base layout next to the raw material production area reduces procurement costs by predicting market trends, finding procurement opportunities, and formulating optimal procurement strategies. While expanding and strengthening lysine, monosodium glutamate, and threonine products, taking into account the development of multiple categories, products such as xanthan gum and pharmaceutical amino acids continue to gain strength, creating new growth points for performance.

Continue to pay dividends and repurchases to build a value investment enterprise. The company implemented an active profit distribution policy. In the future, the company distributed a total of 7.097 billion yuan in cash dividends, accounting for 59.16% of the total net profit returned to the mother during the period. Since 2019, it has implemented 5 repurchases, with a cumulative repurchase payment amount of 2,239 billion yuan, and a cumulative number of repurchases of 275 million shares. In the future, the company will still use cash dividends plus repurchases and cancellations to increase shareholder returns.

Profit forecast and investment advice: The company's revenue for 2024-2026 is estimated to be RMB 278.26, 289.32 and RMB 30.958 billion, respectively, and net profit to mother of RMB 32.15, 36.08 and RMB 38.59 billion, respectively. The corresponding EPS is 1.09, 1.23 and 1.31 yuan, respectively. We gave the company 14 times PE in 2024, corresponding to a target price of 15.29 yuan. We covered it for the first time, and gave it a “buy” rating.

Risk warning: risk of downstream demand falling short of expectations, risk of increased market competition, risk of large fluctuations in raw material prices, risk of production safety and environmental protection, risk of exchange rate fluctuations