Incidents:

The company released its 2023 annual report and 2024 quarterly report. In 23, the company achieved operating income of 1.94 billion yuan, an increase of 37% over the previous year; realized net profit of 450 million yuan, an increase of 40% over the previous year; and realized net profit after deducting 400 million yuan, an increase of 44% over the previous year. At the same time, the company plans to use capital reserves to increase 4.5 shares for every 10 shares to all shareholders, and distribute a cash dividend of 9.0 yuan (tax included) for every 10 shares.

In the first quarter of 2024, the company achieved operating income of 50 million yuan, a year-on-year increase of 25% and a year-on-month decrease of 13%; realized net profit of 87 million yuan, an increase of 7% year-on-year and a decrease of 33% over the previous year.

The price of valine Q1 bottomed out and dragged down growth. The company's performance improved dramatically in 23 years due to the downside risk of a single product cycle, and amino acids and vitamins performed well. The sales volume of amino acid products in '23 was 30% to 77,200 tons, and product revenue increased 26%; the vitamin business performance was more impressive. Revenue increased 575% year over year, accounting for about 13% of revenue, and gross margin increased by 18.5 pct to 55.1%.

The company's 24Q1 performance declined slightly below expectations, mainly due to poor performance in the valine business.

Due to increased competition in the industry, the average price of valine in 24Q1 fell 16% month-on-month to 15,500 yuan/ton compared to 23Q4.

Looking ahead to the future market, the upward trend in pig prices is expected to drive feed demand to continue to recover, and valine prices are expected to rise from the bottom. Furthermore, as the revenue share of the company's products such as malic acid, succinic acid, and inositol continues to grow, the share of a single variety of valine continues to decline, and the impact of the cycle attributes of a single variety gradually weakens.

Various new product projects have been launched one after another, and the high growth attributes increasingly highlight that after the successful commercialization of propanedioic acid and valine, the company's new biofarbutyric acid and PDO products target the 100 billion new material market, and malic acid products are expected to replace the 2.8 million ton global citric acid market.

Furthermore, the company cooperated with Academician Zheng Yuguo to further expand the methionine market, which has a scale of over 30 billion yuan. Up to now, the company's 50,000 tons of PDO, 50,000 tons of succinic acid, and 50,000 tons of malic acid projects have all been completed and put into operation. In addition, projects with alternating annual production of 25,000 tons of valine and arginine, projects with an annual output of 1,000 tons of inositol, methionine projects, and tryptophan projects are being promoted. High growth properties are becoming more and more prominent, and continuous commercialization capabilities are continuously being verified.

Profit Forecasts, Valuations, and Ratings

We expect the company's revenue for 2024-26 to be 31/39/4.8 billion yuan, respectively, with corresponding growth rates of 61%/25%/23%, respectively, net profit to mother of 6.2/8.6/1.10 billion yuan, corresponding growth rates of 38%/39%/28%, EPS of 3.94/5.46/6.98 yuan respectively, and a 3-year CAGR of 35%. Comparatively, the company's average PE in 2024 was 31 times. Considering the company's strong commercialization capabilities in the synthetic biology industry and the smooth launch of various new products, we gave the company 35 times PE in 2024, with a target price of 137.9 yuan, which was raised to a “buy” rating.

Risk warning: risk of new projects falling short of expectations, risk of large fluctuations in product prices, risk of production line infection, risk of core strains being leaked, risk of high customer concentration for some products