24H1 net profit of 1.47 billion yuan/YoY +7.5%, maintaining the “buy” rating, Meihua Biotech released its semi-annual report on July 29. 24H1 achieved revenue of 12.6 billion yuan, -7% YoY, and net profit to mother of 1.47 billion yuan (1.3 billion yuan after deduction), +7.5% YoY (7.4% YoY after deduction); of which 24Q2 net profit to mother 0.72 billion yuan (not 0.66 billion yuan after deduction), YoY + 27% /month-on-month -4% (deduction not year-on-year +6% /month-on-month +3%). We expect the company's 24-26 net profit of 3.27/3.67/3.94 billion yuan, corresponding to EPS of 1.15/1.29/1.38 yuan, which is comparable to the same wind expectations of the company's 24-year average of 15xPE. Considering the early development of the company's synthetic biology platform but the consolidation of the amino acid scale advantage, we will give a 24-year valuation of 11.5xPE with a target price of 13.23 yuan to maintain the “buy” rating.

The 24H1 boom in the amino acid sector improved overall year on year. The 24Q2 off-season or slightly dragged down feed amino acid 24H1 revenue yoy +15% to 5.47 billion yuan. According to Boya Hexun, the average price of lysine (98.5%) /lysine (70%) /threonine was 9.96/5.33/10.37 yuan/kg, yoy +14%/-4%/+5%, the comprehensive price difference of lysine/threonine fell 2.03/3.03 yuan/kg, yoy+1.31/1.72 yuan/kg, due to export conditions and raw materials price, etc., The overall profit of amino acids improved year-on-year; of these, the 24Q2 sector revenue was 2.72 billion yuan (yoy +12% /qoq -1%), the average market price of lysine (98.5%) /lysine (70%) /threonine was 10.42/5.43/10.30 yuan/kg, yoy +20%/-1%/-3% (qoq +10%/+4%/-1%), ly/threonine price difference of 2.32/3.0 yuan/kg, yoy+0.81/+0.72 yuan/kg (qoq+0.0-0.05) yuan/kg).

24H1 MSG, xanthan gum, and by-products are weak. The advantages of the multi-business layout highlight 24H1 flavoring agent revenue yoy -15% to 3.88 billion yuan, Q2 revenue yoy -15%/qoq -10% to 1.83 billion yuan. According to Baichuan Yingfu, the average price of 24H1 MSG is 0.0071 million/ton (yoy -13%), Q2 average price 0.007 million/ton (yoy -13%); 24H1 other business revenue Yoy -30% to 1.13 billion yuan, Q2 revenue yoy -34% /qoq -11% to 0.53 billion yuan, 24H1 xanthan gum average price 21.5 yuan/kg (yoy -51%), Q2 average price 22.4 yuan/kg (yoy -52% /qoq +9%); 24H1 by-product revenue yoy -23% to 1.91 billion yuan, Q2 revenue yoy -14% /qoq 0% to 0.96 billion yuan, soybean meal price drop sector The economy is not good. Although the boom in MSG, xanthan gum, and by-products is weak, 24H1 still achieved a gross margin of YOY+1.1 pct to 19.5% under the advantage of the amino acid boom and multi-business layout.

The overall trend of amino acids/xanthan gum is rising, and project growth helps future growth. According to Boya Hexun, the price of lysine (98.5%) /lysine (70%) /threonine/monosodium glutamate/xanthan gum was 10.6/5.35/10.8/7.67/29 yuan/kg, compared with +1%/-3%/+4%/0%/+7% at the end of June. Amino acids benefit from factors such as the peak demand season and good supply pattern in the second half of the year.

The company is deeply involved in the “amino acid +” strategy. In the future, synthetic biological products such as 0.5 million tons/year monosodium glutamate in Tongliao, 0.6 million tons/year lysine in Baicheng, and valine/pullulan polysaccharide are expected to help growth. The company's average dividend rate for 16-23 (cumulative dividend/cumulative net profit) was about 55%, and repurchases were carried out for 5 consecutive years in 19-23. We believe that in the context of the amino acid boom and high dividend rates, the long-term value of the company is expected to be revalued.

Risk warning: demand falls short of expectations; competition for amino acids deteriorates; progress in new technologies falls short of expectations.