Incident 1: The company released its 2023 annual report. In 23, the company achieved operating income of 15.1 billion yuan, and net profit of 2.7 billion yuan, or -25% year-on-year; of these, Q4 achieved revenue of 4.1 billion yuan in a single quarter, +2% year-on-month, +14% month-on-month, and net profit to mother of 600 million yuan, -1% year-on-year and -2% month-on-month.

Incident 2: The company released a performance forecast for the first quarter of 2024. 2024Q1, the company expects to achieve net profit of 83-90 million yuan, +30% ~ +40% year over year, and +38% ~ +49% month on month; net profit without deduction of 82-8.8 million yuan, +40% ~ +50% year over year, and +23% to +33% month over month.

Comment:

Vitamin prices declined, and the 23-year performance declined: in 2023, the average prices of VA, VE, 2% biotin, and solid methionine were 85 yuan/kg, 71 yuan/kg, 42 yuan/kg, and 19 yuan/kg, respectively, -48%, -17%, -27%, and -11%, respectively. Domestic demand for vitamins was weak in '23, compounded by the release of new production capacity, the oversupply situation worsened, and the vitamin boom declined. Prices of VA, VE, biotin, and solid methionine all declined significantly year on year. Vitamin prices fell, and the company's profitability declined, causing the company's 23-year performance to fall under pressure.

The methionine and vitamin boom picked up, and 24Q1 performance increased dramatically: in Q1 2024, the average prices of VA, VE, 2% biotin, and solid methionine were 82 yuan/kg, 66 yuan/kg, 37 yuan/kg, and 22 yuan/kg, respectively, -10%, -14%, -16%, +22%, respectively, and +11%, +4% month-on-month, respectively. With the gradual recovery of the nutritional product boom, the quantity and price of 24Q1's methionine and vitamin products rose sharply, driving the company's performance to continue to improve.

Projects under construction are progressing steadily, and the company's performance is expected to increase: by the end of 2023, in the 250,000 ton/year methionine phase II project of the company's nutrition sector, the 100,000 ton plant was running smoothly, and the 150,000 ton plant process route was opened at once; the 180,000 tons/year liquid methionine (pure) project was put into construction with Sinopec's venture; construction of 4,000 tons/year cystine began. In the commissioning project, the company insisted on refined operation. The 30,000 tons/year taurine project produced and sold normally, and the 2,500 tons/year vitamin B5 project produced normally. In the flavor and fragrance sector, the annual production of 5,000 tons of menthol project is producing normally. In the new materials sector, the PPS phase III project with an annual output of 7,000 tons was in normal production; the pilot test of the adiponitrile project went smoothly, and project approval progressed in an orderly manner; the HA project was put into trial operation, and the project progressed smoothly. In the API sector, pharmaceutical-grade Q10 was launched, and the product structure was upgraded according to market demand, and gradually developed into a manufacturer of antipyretic, analgesic, nutritional drugs, and specialty API intermediates. The development and construction of the company's new projects and products is being carried out in an orderly manner. The number of commissioned projects continues to expand, and the performance is expected to continue to increase.

Profit forecast, valuation and rating: Considering the decline in the vitamin boom, the company's profitability has declined, so we lowered the company's profit forecast for 2024-2025 and added a profit forecast for 2026. The company's net profit for 2024-2026 is 39.19 (7% reduction)/47.79 (8% reduction)/5.465 billion yuan respectively, equivalent to EPS of 1.27/1.55/1.77 yuan, respectively. The company's ongoing projects are progressing steadily, and there is broad room for growth, maintaining the company's “buy” rating.

Risk warning: Product prices fluctuate greatly, project commissioning progress falls short of expectations, and global economic recovery falls short of expectations.