Report guide

The company released its 2023 annual report, with revenue of 1,882 billion yuan, a year-on-year decrease of 18.34%; net profit to mother was 476 million yuan, a year-on-year decrease of 23.51%. Among them, 23Q4's revenue in a single quarter was 395 million yuan, down 28.82% year on year, up 7.60% month on month; net profit to mother was 63 million yuan, down 11.26% year on year, down 24.11% month on month, and performance was slightly lower than expected.

Key points of investment

Prices of major products rose, and profitability improved significantly in Q4

According to Boya Hexun, the average price of VB1/VB6/folic acid/biotin in 2023 was 116, 134, 40, and 199 yuan/kg, respectively, with year-on-year changes of -18.8%, +7.4%, -28.4%, and -25.7%, respectively. The company sold 11,391 tons of B vitamins in '23, a slight decrease of 2.49% year on year. Sales were stable but demand for farming was sluggish, product prices fell, and the company's B vitamin revenue fell 16.67% year on year in '23. In terms of gross margin, the gross margin of the B-vitamin business increased 0.76 PCT to 41.91% year-on-year due to lower prices of upstream raw materials. Looking at a single quarter, the average price of 23Q4 VB1/VB6 was 128 and 145 yuan/kg, respectively, with year-on-year changes of +3.5% and 27.2%, respectively, and +11.2% and +1.5% month-on-month respectively. The increase in product prices showed a marked increase in the company's profitability. The Q4 gross margin was 44.26%, +14.84PCT year-on-year and +8.47 PCT month-on-month. The company's Q4 gross margin increased but net profit declined, and we think it was mainly due to an increase in R&D expenses of about 25 million yuan month-on-month. The company's net operating cash flow in '23 was 729 million yuan, an increase of 20.21% over the previous year.

According to Boya Hexun, the average price of 24Q1 VB1 and VB6 was 150 and 145 yuan/kg respectively, with year-on-year changes of +37.8% and 23.4%, respectively, and +17.0% and +0.3% month-on-month respectively. Currently, vitamin prices are at a historically low level. The recovery in farming profits is expected to drive demand for vitamins. We are optimistic that VB1 and VB6 prices will rise, and the company's profitability is expected to continue to recover.

Multiple projects are progressing steadily, and product line extensions are expected to accelerate growth

As of '23, the company's projects under construction amounted to 435 million yuan, an increase of 312 million yuan over the previous year. Currently, the company is mainly constructing 1,000 tons of VA, 7,000 tons of VB5, and 667.7 million tons of fine chemical projects in Ningxia, mainly 26,000 tons of ABL, 30,000 tons of solid sodium methoxide, 10,000 tons of liquid sodium methoxide, and 770 tons of hydrogen. With the implementation of the above project, on the one hand, it continues to expand the company's product categories, and on the other hand, it extends upstream to guarantee the supply of raw materials for existing vitamins, which is optimistic about the company's long-term growth.

Profit forecasting and valuation

The prices of the main products VB1 and VB6 have risen. The company's net profit for 24-26 is expected to be 613/7.16/820 million yuan respectively, EPS is 1.40/1.64/1.87, and PE is 18.25/15.62/13.64. The company is a leader in B vitamins. Prices for major products are rising. Furthermore, new production capacity for new products is gradually being implemented, and the company's performance is expected to gradually improve and maintain a “buy” rating.

Risk warning

Risk of vitamin price fluctuations; risk of new production capacity being released less than expected; risk of fluctuating raw material prices.