Incident: The company released its 2023 annual report. In 2023, the company achieved revenue of 13.184 billion yuan, -9.26% year-on-year; net profit to mother was 52 million yuan, -95.82% year-on-year.

Since the third quarter, market demand has recovered, and performance has gradually improved. Global demand growth slowed in 2023 due to macro-environmental impacts such as economic weakness, geopolitics, and the European energy crisis.

The company's performance for the full year of 2023 was under pressure due to both falling sales prices and rising raw material costs. In 2023, the company's gross sales margin was 21.38%, down 6.13pcts year-on-year. However, since the third quarter of 2023, market demand has been slowly recovering, and the company's performance is improving due to increased production, stable prices, and lower raw material and energy costs. The company's net profit for the fourth quarter of 2023 was 87 million yuan, a significant improvement over the previous quarter.

The company has a rich product portfolio and production capacity is constantly expanding. During the reporting period, the company continued to improve methionine, vitamins and other new business capabilities, and actively developed new projects. The company's specialty business revenue continued to grow, mainly due to the growth of aquatic products and new products, as well as strong growth in RumenSmart products. In the future, the company will use endogenous organic development of existing product lines to continuously launch new products and external mergers and acquisitions. (1) Methionine business: On September 15, 2022, the Nanjing Liquid Methionine Plant Phase II project (BANC2), which added 180,000 tons of production capacity, successfully ran and climbed smoothly. Currently, the total production capacity of the Andisu Nanjing production platform has reached 350,000 tons. In addition, the company's 150,000 ton solid methionine plant in Quanzhou started construction in March 2024 and is expected to be put into operation in 2027, continuously consolidating the company's leading position in the methionine industry. (2) Vitamin business: In terms of vitamin A, the company responds to downward price pressure through profit protection measures such as production adjustments. In terms of trading vitamins, especially for vitamin E and vitamin B series products, Adisu protects its profitability by optimizing procurement strategies. (3) Single cell protein business: Kaidisu's Chongqing factory project has entered the trial production stage and signed the first strategic cooperation agreement with a leading feed manufacturer in China on Feikang's innovative protein products. The innovative single-cell protein product was registered by the Ministry of Agriculture and Rural Affairs in mid-January 2024 and allowed to be sold on the market.

The company firmly adheres to the concept of “science first” and promotes optimization and innovation of process products. The company focuses on organizational optimization of research and innovation, mainly around five pillars: green production, new testing, multi-dimensional impact, win-win innovation, and digital empowerment. (1) R&D Center: The company's French research and innovation platform now includes 2 new R&D centers, one of which was put into operation in Lyon in the fourth quarter of 2023, integrating all chemical, engineering, nutritional and analytical capabilities; the other was put into operation in early 2022 and is the only R&D center dedicated to developing product formulation capabilities. (2) New products: The promotion of Luo Zebao Advance Phy has been basically completed, and the product covers most countries; in the third quarter of 2023, the company launched a new product, DynoMic, in the US market, which can improve the efficiency and sustainability of milk production. (3) New service: Nestor's technical service has been used by a large number of key customers of the company. It can provide customers with suggestions on feed formula optimization, help customers measure the nutritional value of feed more accurately, promote accurate nutrition, and achieve cost reduction and efficiency; in November 2023, China's customized version of PNE (Precise Feed Nutritional Value Assessment System) was successfully launched into the Chinese market. (4) New production capacity: The European production platform expansion project successfully increased annual production capacity by 80,000 tons, including adding new production lines to the Burgos plant and Les Roches plant over the past two years, as well as additional supporting investment in existing intermediate production facilities. In addition to expanding production capacity, digital transformation projects continue to be carried out at factories in Europe and Nanjing.

Profit forecast and investment advice: The company focuses on the development and production of functional products, specialty products and other animal feed additive products. As one of the world's leading methionine companies, the company's performance will gradually improve as methionine production capacity expands and the specialty products business continues to grow.

We forecast net profit attributable to mother for 2024-2026 to be 355 million, 745 million, and 1,046 million, respectively. Corresponding to the current PE, it is 69 times, 33 times, and 24 times, respectively, giving it an “increase in wealth” rating.

Risk warning: Downstream demand falls short of expectations, R&D falls short of expectations, fluctuating raw material prices, risk of smooth operation of production equipment, risk of technological upgrading, etc.