Event: The company released its 2023 Annual Report & 2024 Quarterly Report. In 2023, we achieved revenue of 1,199 billion yuan, a record high of +3.07% year over year. Net profit to mother was 81 million yuan, +15.56% year over year; of these, Q4 revenue was 319 million yuan, -4.34% year over year, and net profit to mother was 0.25 million yuan, +62.41% year over year. 2024Q1 achieved revenue of 287 million yuan, +23.32% year over year, and net profit to mother of 13 million yuan, +20.45% year over year.

The company is mainly engaged in R&D, production and sales of enzyme preparations, microecological preparations and animal health products. Enzyme preparations, microecology, and animal health products achieved revenue of 441 million yuan, 237 million yuan, and 297 million yuan respectively in 23 years, with gross profit of 268 million yuan, 98 million yuan, and 124 million yuan respectively. Among them, the revenue and gross profit of enzyme products are the highest in history. The impressive performance of enzyme products is mainly due to the company's upgrading of enzyme preparation technology and rising market demand.

In terms of technological innovation, the company invested a total of 111 million yuan in R&D in 2023, +8.09% year-on-year, accounting for 9.23% of revenue, and is in a leading position in the industry. The company has always attached great importance to the research and development of enzyme preparations, and has achieved breakthroughs in core technology.

Through core technologies such as new gene screening technology, protein expression system modification technology, and protein engineering technology, the company continuously optimizes enzyme products, develops high-efficiency enzyme products, and reduces costs. The operating cost of enzyme preparations in '23 was -13.23%, and the gross margin reached 60.80%, or +15.36% year-on-year. The joint laboratory R&D project between the company and the world's top 500 ADM companies has made substantial progress, and the focus of laboratory work has moved from joint research to the product development stage. Through patent licensing and strain transfer, the company has realized the transformation from technology input to technology output from many domestic and foreign companies, forming a platform advantage based on enzyme preparations.

In terms of market space, in recent years, due to price fluctuations in feed ingredients, the development of feed raw material replacement products has gradually developed into immediate demand. In particular, the development of novel feed ingredients to replace soy protein, and the development of fermented protein raw materials and microbial-derived protein ingredients have become an essential part of the development of enzyme preparations. At present, the import substitution of feed enzyme preparations has been completed, and the international market share is constantly increasing, and the company's advantages in the field of feed enzymes continue to deepen. At the same time, there is a large import substitution market for industrial enzymes, and the market space is broad. In the future, the company will continue to strengthen its expansion in the fields of industry, food, energy, biocatalysis, etc., and usher in new growth in performance.

In the field of microecology business, Evonik Blue Biotechnology (Shandong) Co., Ltd., a wholly-owned subsidiary of the company, was officially put into operation in January 2024, a joint venture between Shandong Weilan Biotechnology Co., Ltd. and Evonik (China) Investment Co., Ltd. This cooperation will help the company strengthen the expansion and development of international business and enhance the company's market competitiveness, brand influence and profitability.

In the field of animal health products business, the company is a nationally certified enterprise technology center and the only national animal health products engineering technology research center in the animal health products industry. Its R&D strength is at the forefront of the animal protection industry. The company acquired 51% of Runbot's shares in August 2023. Runbot has a rich heritage in antibiotic substitution. It appropriately complements the company's enzymes, probiotics, and Chinese herbal medicines to effectively improve the Blue Bio Animal Health System.

Investment advice: Considering the fluctuations in the company's downstream aquaculture industry, we adjusted the profit forecast. We estimate that the company's revenue for 24-26 will be 12.73/13.99/1,558 billion yuan respectively (the previous value was 1,419/1,582 billion yuan for 24-25 years, respectively), and net profit to mother will be 1.00/1.18/138 million yuan respectively (previous value of 143/160 million yuan for 24-25 years), and PE corresponding to the current stock price is 51.4/43.6/37.2 times. Maintain a “buy” rating.

Risk warning: R&D results fall short of expectations; marketing falls short of expectations; downstream aquaculture industry cycle and risk of sudden outbreaks; risk of fluctuations in raw material prices; there is a risk that public data used in research reports may be delayed or not updated in a timely manner.