Incidents:
On June 12, the price of DSM Firmenich feed grade VE was raised to 85 yuan/kg. On June 18, due to a sharp rise in shipping costs, Xinhecheng's 50% export price for feed grade VE increased to 10.5 US dollars/kg. On June 20, the domestic factory price of Zhejiang pharmaceutical feed grade VA was raised to 95 yuan/kg.
Conclusions and recommendations:
The vitamin industry has been at the bottom of the boom for the past two years, prices have remained weak, and the industry is in a state of loss.
Currently, downstream farming profits are gradually recovering. Coupled with improved exports, the industry's sentiment is expected to rebound at the bottom. The company is a leading global vitamin company. It has leading VA and VE production capacity in China. It is optimistic that the company will enjoy the dividends of recovering the economy, fully demonstrate its flexibility in performance, and give it a “buy” rating.
Manufacturers are raising prices, and vitamin prices are picking up: Since June, manufacturers have raised the prices of many vitamin varieties. According to Baichuan Yingfu, the average price of VA was 83 yuan/kg on June 25, up 1.2% from the beginning of the month, the average VE price was 74 yuan/kg, up 7.2% from the beginning of the month, the average VC price was 26 yuan/kg, up 2.0% from the beginning of the month, and the average price of VD3 was 78 yuan/kg, up 34.5% from the beginning of the month. Overall, VA prices are quite strong. They have been in the middle for three years, and VE, VC, and VD3 are still in the bottom range. We believe that the vitamin supply and demand pattern is expected to improve as profits in downstream pig farming and other industries recover and stocks at home and abroad are digested.
The improvement in farming profits is expected to drive demand for vitamins: with the exception of VC, most vitamins are mainly used as feed additives, and the amount added is affected by farming profits. The price of pigs was low throughout 2023. Self-breeding and outsourced farming were at a loss, and farmers tend to reduce the addition of vitamins. Pig prices rose in 2024, and pig breeding profits improved markedly. This week, the profit from outsourced piglet breeding was 383 yuan/head, and the profit from self-breeding and self-raised breeding was 367 yuan/head, turning a loss into a profit over the previous year. As pig farming profits recover, we expect demand for vitamins as feed additives will improve.
Exports are improving, and overseas demand is improving: Since 2024, vitamin exports have shown a positive trend compared to the same period last month. According to export data, the total export volume of VA in the first five months of 2024 reached 2,298 tons, yoy +14%; VE exports 46,206 tons, yoy +29%; VC exports 77,825 tons, yoy +3%. In May, VA exported 540 tons, yoy +51%; VE exported 8430 tons, yoy +39%; VC exported 13,581 tons, yoy -0.70%. Vitamins have experienced a two-year low, and terminal stocks are in a low position. It is expected that after the boom starts, terminals will also have the momentum to replenish their stocks.
Leading vitamin companies, new methionine projects contribute to growth: the concentration of vitamin production capacity is high. The company is a leading domestic VA and VE enterprise, with a VA production capacity of 10,000 tons, accounting for 37% of the total domestic production capacity; vitamin E (50% powder) production capacity is 60,000 tons, accounting for 32% of the total domestic production capacity. In addition, the company also deployed 2,000 tons of vitamin D3, 45,000 tons of vitamin C, vitamin B5, biotin, and other types of vitamins.
The rise in vitamin prices is expected to drive a rapid recovery in the company's performance. In the nutrition sector, in addition to vitamins, the company is also vigorously deploying methionine. Currently, it has a methionine production capacity of 250,000 tons, of which 150,000 tons of production capacity will be built in 2023, and the release of production capacity is expected to increase the company's profits. In addition, the company has also invested in Sinopec to build an 180,000 tons/year liquid methionine (pure) project, which has now been put into construction. The price of methionine has gradually recovered since the second half of 2023. Currently, the average market price is 21.8 yuan/kg, which is in a medium to high position in the past three years. The company's performance is expected to be boosted in 2024 as vitamin and methionine prices pick up.
Profit forecast: We expect the company to achieve net profit of 36/45/5.5 billion yuan in 2024/2025/2026, yoy +33%/+24%/+23%, equivalent to EPS of 1.17/1.44/1.77 yuan. Currently, the PE corresponding to the A share price is 16/13/11 times. The valuation is reasonable, giving it a “buy” rating.
Risk warning: 1. The price of the company's products falls short of expectations; 2. The progress of the project under construction falls short of expectations.