Incident: On July 29, 2024, the company released its 2024 semi-annual report, achieving revenue of 12.643 billion yuan, -6.96% YoY; net profit to mother of 1.474 billion yuan, +7.51% YoY. Among them, Q2 achieved revenue of 6.156 billion yuan in a single quarter, -7.26% year-on-year, and -5.09% month-on-month; net profit to mother of 0.722 billion yuan, +26.68% year-on-year, and -3.94% month-on-month.

Prices in the amino acid business improved month-on-month in Q2, and planned projects are expected to further consolidate their leading position. The animal nutrition amino acid sector is one of the company's main businesses. In terms of price: According to wind data, the average prices of 2024Q2 threonine, 98% lysine, and 70% lysine were 10.30, 10.42, and 5.43 yuan/kg, respectively, -3.28%, +19.91%, and -0.59% month-on-month, and -1.30%, +9.64%, and +3.60%. The price of threonine declined slightly in the second quarter, but the price of lysine rebounded significantly. Benefiting from factors such as improved demand, the prices of sucrose and lysine in the third quarter. As of 2024.7.29, the average prices of the three products were +0.33, +0.15, and +0.05 yuan/kg, respectively, increasing profitability. In terms of production capacity: The company announced in the first half of 2024 that it will build 0.6 million tons/year of lysine and its supporting projects. After completion, the project is expected to further strengthen the company's leading position in the lysine variety.

The price of monosodium glutamate is under pressure, and the price of xanthan gum has stabilized. The company currently has a production capacity of about 1 million tons/year of MSG and is in a leading position in the industry. According to Baichuan Yingfu data, the average price of monosodium glutamate in the second quarter of 2024 was about 7,934 yuan/ton, -3.04%. It is mainly affected by the volume of new production capacity on the supply side, and there is competition within the industry. It is expected that as demand grows, the new production capacity is expected to be gradually digested. At the same time, the company also has xanthan gum production capacity, which is mainly used in the petroleum and food fields. According to wind data, the average export price of xanthan gum in the second quarter of 2024 was about 28.92 yuan/kg, -31.17% year over year and -0.43% month on month. Prices showed a steady trend.

Investment advice: The company is a leading company in amino acids, monosodium glutamate, xanthan gum, etc. With the promotion of soybean meal reduction policies, amino acid and other businesses are expected to see a sharp rise in volume and price. We expect the company to achieve operating income of 26.023/28.996/32.303 billion yuan and net profit to mother of 3.019/3.331/3.5 billion yuan in 2024-2026, corresponding PE of 9.17/8.31/7.91 times, respectively, to maintain an “increase in holdings” rating.

Risk warning: risk of demand falling short of expectations; new production capacity falling short of expected risk; soybean meal reduction promotion process falling short of expected risk; risk of RMB exchange rate fluctuation