Huaheng Biotech announced its 2023 annual report and 2024 quarterly report. The company achieved operating income of 1,938 million yuan in 2023, +36.6% year over year; net profit to mother of 449 million yuan, +40.3% year over year; net profit after deducting non-return to mother was 438 million yuan, +44.3% year over year.
In the first quarter of 2024, we achieved operating income of 501 million yuan, +25.1% year on month, -12.8% month on month; net profit to mother of 87 million yuan, +6.6% year on year, -32.9% month on month; net profit after deducting non-return to mother was 86 million yuan, +9.7% year on year, and -30.2% month on month.
The gross margin decreased in the first quarter of 2024, and the expense ratio remained stable. Huaheng Biotech maintained relatively steady growth on the revenue side in the first quarter of 2023 and 2024. The main reason why the profit side growth rate was slower than the revenue side in the first quarter of 2024 was the decline in gross margin. The company's gross profit margin for the first quarter of 2024 was 33.6%, down 5.3 percentage points year on year and 5.1 percentage points month on month. The main reason may be the decline in the prices of the company's amino acid products. On the cost side, Huaheng Biotech remained stable in the first quarter of 2024, with a sales expense ratio of 2.2%, an increase of 0.2 percentage points over the previous year and a decrease of 0.5 percentage points from the previous month; the management expenses ratio was 6.5%, down 0.4 percentage points from the previous year and 0.7 percentage points from the previous month; and the R&D expenses rate was 5.7%, down 0.5 percentage points from the previous year and 0.2 percentage points from the previous month.
The product matrix is gradually expanding, and large product volumes can be expected. Based on the advantages of synthetic biology technology, Huaheng Biotech has continuously expanded its product matrix. It has expanded its products from amino acids (L-alanine, L valine, etc.) and vitamins (D-calcium pantothenate, inositol, etc.) to new biobased material monomers (1,3-propanediol, succinic acid) and other products (malic acid, etc.), further opening up the company's business growth space. Among them, 1,3-propanediol (PDO) is an important raw material for high-performance polyester fibers such as PTT, and its market demand continues to grow with the development of the textile industry. Huaheng Biotech has succeeded in the development and mass production of bio-based 1,3-propanediol, achieved a breakthrough in technology, and effectively solved the problem of long-term dependence on imported raw materials, providing strong support for the independence of the domestic PDO-PTT industry chain. As a natural organic acid, malic acid has a wide range of downstream applications, and has markets in food additives, pharmaceuticals, cosmetics, etc. All of the above high-potential products are expected to become long-term growth points for Huaheng Biotech in the future.
Maintain a “Highly Recommended” investment rating. According to Huaheng Biotech's product volume pace, we expect net profit to be 6.9 billion yuan, 9.9 billion yuan, and 1.29 billion yuan respectively in 2024-2026, +54%, +43%, and +30% compared to the same period. The corresponding PE is 25x, 17x, and 13x, respectively, maintaining a “highly recommended” investment rating.
Risk warning: risk of R&D falling short of expectations, risk of product sales falling short of expectations, risk of increasing competition, risk of uncertainty in foreign investment, risk of lifting the ban, etc.