Description of the event

On April 21, 2024, Huaheng Biotech released its 2023 Annual Report and 2024 Quarterly Report. In 2023, the company achieved revenue of 1,938 billion yuan, a year-on-year increase of 36.63%, and achieved net profit of 449 million yuan to mother, an increase of 40.32% over the previous year. In the fourth quarter of 2023, the company achieved revenue of 574 million yuan, a year-on-year increase of 32.02% and an increase of 11.63% month-on-month; net profit to mother of 129 million yuan, an increase of 25.36% year-on-year, and 0.31% month-on-month. In 2023, the company's amino acid products achieved revenue of 1,465 billion yuan, a year-on-year increase of 25.62%, and gross margin of 43.32%, an increase of 0.95% year-on-year. Amino acid production capacity continued to increase. Production in '23 was 78,739.14 tons, an increase of 22.67% over the previous year. Sales volume was 77,184.91 tons, up 29.87% year over year.

In addition, the company's vitamin products, represented by inositol, grew strongly, achieving revenue of 218 million yuan in 2023, up 574.96% year on year, gross margin of 55.1%; up 18.52% year on year.

In the first quarter of 2024, the company achieved revenue of 501 million yuan, up 25.12% year on year, down 12.77% month on month; realized net profit to mother of 87 million yuan, up 6.62% year on year and down 32.95% month on month.

The company plans to distribute a cash dividend of 9.00 yuan (tax included) to all shareholders for every 10 shares, and plans to increase 4.5 shares for every 10 shares with capital reserve.

Incident reviews

Major new products are expected to launch in '24, and there is strong momentum for subsequent growth. In 2023, the company will advance construction projects for succinic acid, 1,3-propanediol, and malic acid according to the plan, and can achieve continuous mass production in 2024.

Succinic acid helps promote large-scale application of downstream PBS, degradable plastics, etc.; the successful commissioning of the 1,3-propanediol project has broken the long-standing monopoly of foreign companies on 1,3-propanediol technology and markets, further increasing the market capacity of 1,3-propanediol; the commissioning of the malic acid project will greatly promote the development of downstream applications and effectively increase the global share of China's bio-based malic acid industry. In 2024, the company will accelerate the implementation of the “Biologic Method Alternating Annual Production Project of 25,000 tons of valine, arginine and 1,000 tons of inositol” at the Chifeng base, which is expected to contribute to revenue. At the same time, the company will promote the construction of a “project with an alternating annual output of 60,000 tons of three-chain amino acids, tryptophan, and refined amino acids with an annual output of 10,000 tons” at the Bayannaoer base, and will continue to expand its product matrix.

Investment advice

We predict that from 2024 to 2026, the company will achieve revenue of 30.11/40.24/6.042 billion yuan, respectively, an increase of 55.3%/33.7%/50.1%; net profit to mother of 6.04/8.61 billion yuan, an increase of 34.6%/42.4%/33.6% year-on-year, corresponding EPS of 3.84/5.46/7.3 yuan, PE 27.4/19.2/14.4 times, maintaining the “buy-B” rating.

Risk warning

Raw material price fluctuation risk; market competition risk; downstream demand growth falling short of expectations; macro-environmental risk.