Introduction to this report:

The company's 23Q4 performance is basically in line with expectations. The Thai base is about to be put into operation. We are optimistic that the company's 24-year performance will rise at an inflection point and maintain an “gain” rating.

Key points of investment:

Maintain an “Overweight” rating. The company's 24Q1 performance was basically in line with expectations, maintaining the company's EPS of 1.61, 2.19, and 2.73 yuan for 24-25 and 26 years, respectively. Combined with the 2024 PE23X awarded by comparable companies, the target price was lowered to 37.15 yuan (originally 38.25 yuan).

The month-on-month increase in 24Q1 results was in line with expectations. For the full year of 2023, we achieved revenue of 630 million yuan (-10.66% YoY), net profit attributable to mother of 80 million yuan (YoY -39.18%), and net profit of 73 million yuan after deduction. 23Q4 revenue of $156 million (-5.18% YoY, -16.6% YoY), net profit to mother of RMB11 million (-65.76% YoY, -51.11% YoY), net profit of $0.09 billion after deduction (-67.77% YoY, -60.64% YoY). 24Q1 revenue was 174 million yuan, +39.41% YoY, +11.69% month-on-month, achieving net profit to mother of 0.178 million yuan, -13.55% YoY and +59.51% month-on-month. The company's gross profit share of natural flavors and cooling agents rose to 87.11% in 2022 to 91.23% in 2023, and the share of synthetic fragrances continued to decline. The 24Q1 net profit margin was 10.11%, up from 23Q4, and the decline in expenses led to a month-on-month increase in the company's net profit margin.

New production capacity is about to be launched at the Thai base, and the global layout is on the next level. The company has extensive natural vanillin and cooling agent WS series brands and customer resources. The Thai production base project plans to build 1,000 tons of vanillin and 150 tons of cooling agent. The holding subsidiary Wuxue Grammer plans to build 432 tons of natural fragrance production capacity. The company's market share of natural flavors and cooling agents is expected to continue to increase. The establishment of a Thai subsidiary is expected to further optimize the overseas business layout and ease the company's high tariff pressure. The project is planned to be built for 2 years, and construction of phase II fragrance products will be promoted in due course, and further expansion of production capacity can be expected.

Catalysts: Demand for new downstream tobacco exceeds expectations; new production capacity construction is progressing beyond expectations.

Risk warning: risk of new product development, risk of loss of core technology and loss of core technical personnel, risk of fluctuating raw material prices, risk of customer concentration, falling short of expectations in company project construction, etc.