Incident: On January and April 24, Chenguang Biotech released the “2024 First Quarter Report”. In 2024Q1, the company achieved operating income of 1,732 billion yuan, a year-on-year decrease of 4.7%; realized net profit of 38.59 million yuan, a year-on-year decrease of 71.4%; and a basic EPS of 0.0725 yuan/share, a year-on-year decrease of 71.4%.
2. On April 24, Chenguang Biotech issued the “Notice on Adjusting the Company's Share Repurchase Plan”, increasing the total repurchase capital to no less than RMB 300 million (inclusive) and no more than RMB 400 million (inclusive).
The subsequent impact of the cottonseed business is relatively limited, and the basic market of the plant extraction business remains stable. The plant extraction business achieved revenue of 762 million yuan in the first quarter, a slight increase over the previous year; achieved gross profit of 138 million yuan, a decrease of 1% over the previous year. The cottonseed business achieved revenue of 840 million yuan, a year-on-year decrease of about 12%; gross profit decreased by about 122% year-on-year. As explained in the previous report “Fluctuations in Q1 are easily amplified, and an inflection point is expected to be seen in the second half of the year”, the cottonseed business is expected to drag down overall performance throughout the year due to a sharp decline in price factors. Due to the concentrated confirmation of losses in hedging instruments this quarter, the impact on subsequent quarterly results will continue or be limited. The company's performance is bottoming out, and the long-term positive trend has not changed. The basic market of the plant extraction business remained stable in the first quarter, and revenue volume continued to grow. The main products are facing short-term adjustments. The cost of raw materials for red chili peppers has risen this year, and sales prices have increased accordingly; chili extract replaced raw materials from Yunnan, and sales have increased dramatically; lutein prices have stabilized, and sales have increased recoverably. The overall trend of Echelon products continued to be good. Sales of peppercorns extract increased by more than 50%, sales of stevia increased 11% year on year, and continued to improve overall competitive advantage through measures such as optimizing variety processes and expanding production capacity. Sales revenue from the health food business continues to grow.
Repurchase efforts have been stepped up again, and the overall repurchase ratio may be close to 7%. According to the company's announcement on May 6, the company's share repurchase ratio has reached 4.96%, with a repurchase amount of 302 million yuan. Based on the current stock price (May 8, 2024) and the remaining repurchase amount, the company was able to continue to repurchase 9.75 million shares, accounting for 1.83%.
Investment advice: The company is a leading enterprise in the field of plant extracts. The profit level of existing advantageous varieties is relatively stable, large-scale varieties seize market share and maintain a high growth rate, the prospects for reserve varieties are good, and the “three-step” strategy is progressing steadily. The company leads the industry in technology and has significant cost advantages. Continued construction of plantations in Zambia will further reduce costs. The health products business has great potential for continuous cultivation. Short-term adjustments will not change the trend of strengthening long-term advantages. The company expects EPS to be 0.67, 1.13, and 1.39 yuan in 2024-2026, corresponding to PE 15.1X, 8.9X, and 7.3X, respectively, maintaining a “buy” rating.
Risk warning: Raw material prices fluctuate greatly, downstream demand falls short of expectations, product exports are blocked, and seasonal procurement and processing of raw materials.