Core views:
A leader in the whole biomass recycling industry chain, synthetic biology opens the long-term ceiling. The company is a leading integrated food+raw firewood, and relies on production capacity. According to the company's financial report, the compound growth rates of revenue and net profit to mother reached 35.9% and 82.3% respectively in 18-22. Under the extreme influence of Europe's anti-countermeasure policy in '23, the company's net profit to mother fell 26.3% year on year, and stable revenue from front-end food waste treatment supported performance. Looking ahead, the main biomass resource regeneration business+new biosynthesis business formed a two-wheel high growth driver: (1) the 2,100 tons/day project was launched in Tongzhou, Beijing, and the company's ability to take orders was strong; (2) cooperated with the Chinese Academy of Sciences to enter the hMOs field, opening up a second growth curve.
Biomass resource regeneration: Multiplying production capacity helps increase performance, and the layout of the entire industry chain is aggressive and defensible. Relying on strong order collection capacity, according to the company's financial report, the company's food waste production capacity increased from 2,537 tons/day to 3,541 tons/day in 21-23, an increase of 39.6% over three years. The Tongzhou project was bid for 2,100 tons/day in 24, supporting the doubling of treatment capacity to 7071 tons/day in '26. The back-end raw firewood processing layout is superimposed to achieve offensive (the yield of the original bioenzymatic method is raised to 94%, and bioaviation coal is actively deployed) and defensive (when the industry is sluggish, direct sales of waste oil guarantee profit).
Synthetic biology: Domestic demand for hMOs is about to be released, a pioneer in the domestic production field. Breast milk oligosaccharides are the third most important nutritional component in breast milk. After adding milk powder, the nutrition of milk powder can be made closer to breast milk. Currently, high-end overseas milk powder brands have added it. According to the company's annual report, in October 2023, the National Health and Health Commission officially listed 2'FL (2'-fucosyl lactose) and LnnT (lactose-N-tetrathosaccharide) as new types of food additives, and approved for use in infant formula, etc. The company leverages the advantages of strains to lay out this track. According to the company's investor relations activity record table, its LnnT strain has been certified by the Ministry of Agriculture and is awaiting approval by the Health and Health Commission. The 1000 tons/year production line is expected to open the second curve.
Profit forecast and investment advice: Regenerative as the foundation, synthesis as the spear, biotechnology is steady and far-reaching. We expect net profit of 2.5/3.3/42 billion yuan from 24 to 26, corresponding to PE valuation of 15.3/11.5/9.2 times. Taking into account comparable company valuations and the company's performance growth potential, we will give a PE valuation of 20 times in 24 years and a reasonable value of 20.49 yuan/share, covering the first time to give a “buy” rating.
Risk warning. Risk of policy changes; oil price fluctuations; new business layout falling short of expectations, etc.