Incidents:
The company announced a pre-increase in semi-annual results for 2024. In the first half of 2024, the company expects to achieve net profit of 0.55-0.65 billion yuan, +1547% to +1846% year-on-year, and achieve net profit of 0.65-0.75 billion yuan after deduction, +6009% to +6949% year-on-year; of these, Q2 is expected to achieve net profit of 0.273-0.373 billion yuan in a single quarter, +753% ~ +1966% year-on-year, and -1% to +35% month-on-month.
Comment:
Sales of methionine and specialty products increased, and 24Q2 performance increased dramatically: According to the company announcement, the strong increase in Q2 performance was mainly due to: 1) strong growth in the methionine business, mainly due to continuous penetration of liquid methionine and stable sales prices; 2) rapid growth in monogastric animal products and aquatic products in the specialty products business. The ruminant business showed some signs of recovery at the end of the second quarter; 3) Reduced raw material and energy costs, and effective management of the global supply chain, distribution channels and tariffs; 4) Working capital management and ongoing promotion of cost control and competitiveness improvement plans. We believe that the strong growth in the company's Q2 performance reflects, on the one hand, the continued recovery in methionine and specialty products business, and on the other hand, the company's excellent supply chain, tariff, sales and cost management capabilities. Against the backdrop of a continued recovery in industry sentiment, the company's profitability is expected to continue to improve.
The pattern of methionine supply and demand improved, and industry sentiment continued to pick up: production cuts in overseas factories drove up methionine prices. 2023Q2, Q3, Seagate transformed the methionine production line at its Malaysian plant by reducing capacity utilization, releasing about 40% of methionine production capacity to convert to valine and isoleucine. Evonik announced that it will reduce the capacity utilization rate of its Singapore plant in Q4 2023 and Q1 2024 and implement a 0.04 million ton capacity expansion project. With the temporary closure of existing production capacity and delays in new production capacity, methionine supply will be significantly tightened. Furthermore, the demand for methionine in the Asian region is growing rapidly due to the growing population, the continuous development of modern livestock and poultry farming, and changes in the diet structure of developing countries. Among them, China has become the world's largest consumer of methionine and has great potential for demand. Due to the impact of production cuts at the overseas Seagate plant in Malaysia and Yingchang Singapore, combined with the continued recovery in downstream demand, methionine prices rebounded to the bottom, providing support for the company's performance growth.
Investing in the Quanzhou methionine project, methionine production capacity is expanding steadily: the company plans to invest in the construction of a 0.15 million tons/year solid methionine project, with an estimated total investment of about 4.9 billion yuan. The project construction period is about 26 months. The project is expected to be put into operation in 2027, and the payback period is 9 years. The project will make full use of the integrated synergy with Sinochem to save capital and operating expenses, further expand methionine production capacity, consolidate the company's leading position in the methionine industry, and optimize the company's methionine product structure and domestic and foreign production capacity layout. Through continuous industrial investment and expansion of production capacity, the company's European production platform has continuously implemented multiple capacity expansion projects. Since Q3 2021, the European project has increased additional production capacity by 0.08 million tons/year. The second phase of the Nanjing plant was put into operation in Q3 2022. The total production capacity of the Nanjing production platform reached 0.35 million tons of liquid methionine. The new production capacity forms a strong synergy effect and scale advantage with the existing plant. The company's competitive cost advantage will continue to be strengthened, and the company's performance is expected to further increase at that time.
Profit forecast, valuation and rating: The methionine boom has picked up significantly, and the company's profitability has increased, so we raised the company's profit forecast for 2024-2025 and added a profit forecast for 2026. The company's net profit for 2024-2026 is 10.27 (up 23%) /13.21 (21% increase) /1.521 billion yuan, respectively, equivalent to EPS of 0.38/0.49/0.57 yuan. Maintain the company's “buy” rating.
Risk warning: downstream demand in the aquaculture industry weakens; methionine production capacity investment progress falls short of expectations; raw material prices fluctuate.