Incident: In 2023, the company achieved operating income of 1,199 billion yuan, a year-on-year increase of 3.07%, net profit of 80.707 million yuan, an increase of 15.56%; 2024Q1 achieved revenue of 287 million yuan, an increase of 23.32% year-on-year, and net profit of 12.72 million yuan, an increase of 20.45% year-on-year.

Comment: The company's revenue is growing steadily, and R&D drives an increase in gross profit. The company's gross sales margin in 2023 was 46.23%, +3.00pp. The company's net profit growth rate was significantly higher than the revenue growth rate, mainly due to the increase in gross margin. In 2023, the company invested 110 million yuan in R&D, accounting for 9.23% of revenue, and is at a high level in the industry. The company's enzyme preparation technology has been upgraded, increasing the gross profit margin of the product. Through the effective application of new genetic screening technology, the company has developed high-efficiency enzyme products; through protein engineering, some products have improved enzyme activity and temperature resistance, increased the application effect of enzymes, and reduced costs; through expression systems (chassis cells), regulatory factors have been further improved and optimized, and fermentation levels have been increased and costs reduced.

The probiotic industry has received great attention, and the company has bright prospects for cooperative development in multiple fields. Probiotics help regulate the body's physiological functions and improve immunity. They are an industry encouraged by the national industrial policy. China's “Outline of the “Healthy China 2030” Plan has been published and implemented, and it has become a powerful driving force for stimulating the development of the healthcare industry. At the national strategic level, it is required to actively expand preventive health services and promote the transformation of traditional disease treatment to health promotion. According to research agency ZionMarketResearch, the global production value of probiotics is expected to exceed 77 billion US dollars in 2025. The company grasps the growing demand for probiotics for human use in the consumer market and cooperates with leading international companies. ADM Group has rich experience in the development and production of ingredients, additives and flavors for food, beverages and supplements. In the future, the two sides will work together to jointly provide R&D and technical support to Weifang Weifang Weizhi Blue (Aidimeng Weilan). The new plant will have a production capacity of 100 tons of functional probiotic powder raw materials and 100 tons of probiotic liquid products. The plant is expected to be officially put into operation in early 2025. As a Sino-foreign joint venture, Aidimeng Blue Biotech has a unique resource advantage. As a bridge, it connects ADM's global probiotic resources with Weilan Biotech's probiotic technology and strain reserves, uses patented strains from various parties to provide customers with high-quality products and services, and is supported by the cost advantages of local chemical production, its cost performance ratio has improved.

Improve the product matrix and gradually climb the decline in production capacity. In August 2023, the company acquired 51% of Runbote Biotechnology Co., Ltd. Runbot has a rich heritage in antibiotic substitution, especially in tannic acid research. It appropriately complements the company's enzyme preparations, probiotics, and Chinese herbal medicines to form a complete system of antibiotic substitution. The company's Weifang Kangdien refined enzyme series product production line construction project is under construction and is expected to be put into production and operation in December 2024. With the improvement of the product matrix and the rise in production capacity, the company will further improve its probiotic brand, production capacity, and market share.

Profit forecasting and investment advice. EPS is expected to be 0.55 yuan, 0.63 yuan, and 0.76 yuan respectively in 2024-2026. The corresponding dynamic PE is 23/20/17 times, respectively, maintaining the “holding” rating.

Risk warning: Risks such as R&D progress falling short of expectations and product sales falling short of expectations.