Incident: The company released its 2023 annual report and 2024 quarterly report. It achieved operating income of 1.94 billion yuan, up 36.6% year on year; achieved operating profit of 5.1 billion yuan, up 49.4% year on year, realized net profit of 450 million yuan, up 40.3% year on year; based on total share capital of 158 million shares, achieved diluted earnings of 2.9 yuan per share and operating cash flow per share of 1.9 yuan. In the fourth quarter of '23, revenue was 570 million yuan, up 32.0% year on year, up 11.6% month on month; net profit to mother was 130 million yuan, up 25.4% year on year, which was basically the same. The company achieved revenue of 500 million yuan in the first quarter of 2024, +25.1% year over month, -12.8% month on month, operating profit of 100 million yuan, +4.6% year on month, and -32.3% month on month, and realized net profit to mother of 90 million yuan, +6.6% year over month, and -33.0% month on month.

The release of production capacity led to an increase in the scale of production and sales. The increase in the company's performance in 2023 is mainly due to an increase in product production and sales: amino acid products achieved revenue of 1.47 billion yuan, accounting for 86% of the company's total revenue, and was the main source of revenue; in 2023, production of amino acid products was 79,000 tons, up 15,000 tons year on year, and sales volume was 77,000 tons, up 11,500 tons year on year; in terms of price, the average price of the company's amino acid products declined slightly year on year. It was 19,000 yuan/ton in 2023, down 3.3% from 20.000 yuan/ton in '22, of which according to Bo According to Yahexun, the average price of valine in the 23 year market was 22.7 yuan/kg, down 2.0% from the average price in the same period in '22. The price of valine continued to decline in '24. The average price of valine in 24Q1 was 15.5 yuan/kg, yoy -42.0%, and qoq -16.1%. In terms of profitability, the company achieved gross profit of 790 million yuan in 23 years, an increase of 240 million yuan, yoy +43.0%; the comprehensive gross margin was 40.5%, up 1.8 percentage points from the previous year; the comprehensive gross profit margin for the first quarter was 33.58%, down 5.26 percentage points year on year, down 5.09 percentage points from month to month

The cost rate remained stable during the period, and the company's R&D expenses were +38% year-on-year in 2023. The company's total expenses for the 23-year period were 280 million yuan, an increase of 70 million yuan over the previous year, yoy +32.7%. The cost rate for the period was 14.7%, a decrease of 0.4 percentage points over the previous year. On a quarterly basis, the three cost rates for 23Q4 were 2.6%/5.7%/1.1%, and 24Q1 was 2.2%/6.5%/0.9%, respectively. The company attaches great importance to technological innovation and R&D. In 2023, the company spent 110 million yuan on R&D, an increase of 0.3 billion yuan over 2022, yoy +38.0%, and a R&D cost rate of 5.6%.

Projects under construction continued to advance, and the Bayannaoer base was further expanded. In 2023, the company promoted the Chifeng base production base project with an annual output of 50,000 tons of biobased succinic acid and raw materials for biobased products, a construction project with an annual output of 50,000 tons of bio-based 1,3-propanediol, and the Qinhuangdao base construction project with an annual output of 50,000 tons of bio-based malic acid. In 2024, all of these projects can achieve continuous mass production, which is expected to provide significant increases for the company. In March '24, the company plans to build a “project with an alternating annual output of 60,000 tons of three-chain amino acids, tryptophan, and 10,000 tons of refined amino acids” with wholly-owned subsidiaries. Based on market demand, the company will continue to expand the production capacity of three-chain amino acids and tryptophan products, which will help increase product production and improve the profitability of the company. At the same time, expand the scope of the company's business, enrich the variety of products, and increase market competitiveness.

Profit forecast and valuation: Taking into account the company's new product production capacity, main product production and sales, and cost side changes, the company's net profit from 2024 to 2026 is estimated to be 6.6, 8.4, and 1.03 billion yuan, respectively (the value was 81 million yuan 25 years ago), maintaining a “buy” investment rating.

Risk warning: the product line is relatively single risk, the risk of the main product application areas being concentrated, the risk of slowing market demand and limited capacity, and the risk of falling sales prices of major products.