Description of the event

The company released its 2024 semi-annual report, achieving revenue of 12.64 billion yuan (-7.0% year over year), realized vested net profit of 1.47 billion yuan (+7.5% year over year), and realized attributable deducted non-net profit of 1.3 billion yuan (-7.4% year over year). Among them, Q2 achieved revenue of 6.16 billion yuan (-7.3% yoy, -5.1% month-on-month), attributable net profit of 0.72 billion yuan (YoY +26.7%, -3.9% month-on-month), and realized 0.67 billion yuan in non-net profit (+7.4% YoY, +4.6% month-on-month).

Incident comments

The company's feed amino acid sector boomed, and the boom in monosodium glutamate, xanthan gum, and by-products declined somewhat. The 2024H1 feed amino acid sector achieved revenue of 5.47 billion yuan (+15.0% year over year), and the sales prices of the company's main products threonine and 98% lysine increased by about 13% year on year. The company's interim report revealed that its threonine project, which expanded production in September 2023, and the Tongliao valine technical improvement project achieved full production and sales during the reporting period, so the volume and price of the company's feed amino acid sector rose sharply. The 2024H1 flavoring sector achieved revenue of 3.88 billion yuan (-12.7% YoY). Due to the industry's new production capacity and falling prices of raw corn, the price of large-package MSG products fell 12.7% year on year. The 2024H1 large raw materials and by-products sector achieved revenue of 1.91 billion yuan (-22.7% year over year). The price of soybean meal in the first half of the year was 3,447 yuan/ton (-21.2% month-on-month, -18.9% year over year). The price of soybean meal fell. Although production and sales of large raw material by-products such as protein powder, which were priced in comparison with soybean meal, increased sales prices, which led to a decline in revenue in the sector. 2024H1's other businesses (xanthan gum, trehalose) achieved revenue of 1.13 billion yuan (-29.9% YoY), which was mainly affected by the decline in the price of xanthan gum.

Exports increased, and the lysine and threonine boom continued to rise. On the demand side, amino acid exports account for a high share. After removing overseas inventories in the first half of 2023, demand picked up in the second half of the year. Exports of 2024H1 lysine esters and lysine salts were 0.548 million tons, up 24.3% year on year; 2024H1 exports of other aminolphenols, amino acid phenols, etc. (threonine) were 0.362 million tons, up 42.7% year on year. On the supply side, new production capacity for lysine was limited during the year. Threonine CR4 remained between 88% and 91% for five consecutive years, and the industry pattern has substantially improved in recent years. According to Boya Hexun, as of July 29, the prices of 98% lysine/ 70% lysine/threonine were 10.60, 5.35, and 10.80 yuan/kg respectively, changing +4.4%/+1.9%/+9.1% from the beginning of June. Driven by external demand, the economy is expected to maintain an upward trend.

The industry is increasing production capacity, and the price of MSG is under pressure. The price of raw corn has declined, and Fufeng Group announced earlier that the new MSG production capacity has entered trial operation. Currently, MSG prices are still under pressure. According to Baichuan Yingfu, as of July 29, the MSG price was 7,668 yuan/ton, down 2.1% from the beginning of June.

Continued dividends, repurchases, and steady capital expenditure support companies to move towards synthetic biology platform-based enterprises. In 2017-2024, the company has implemented 5 employee shareholding plans, 1 phase of restricted stock incentives, which deeply bind core business backbone to the company and shareholders. The company's cash flow remained strong, with net cash flow from operating activities of $2.236 billion in the first half of 2024. The company maintains sufficient cash. The cumulative cash dividend for the past five years (2019-2023) reached 5.31 billion yuan, and the cumulative dividend rate was 44.6%.

The company continues to promote overseas site selection and inspection work. Based on the complete supporting industrial chain and industrialization capabilities of each base, the company focuses on sorting out technology and product opportunities in the fields of basic biological technology and precision fermentation, promoting advanced production and R&D technology and the layout of new products to help the company move towards a platform-based enterprise.

The company is a global leader in monosodium glutamate and amino acids. It benefits from the gradual optimization of the industry pattern, while continuing to increase scientific and technological innovation, building a synthetic biology platform, and has strong growth momentum. The estimated net profit for 24-26 is 3, 3.3, and 3.7 billion yuan.

Risk warning

1. Global aquaculture demand is sluggish;

2. The risk of large fluctuations in the prices of major raw materials.