occurrences

On the evening of July 29, the company released its semi-annual report. 2024H1 achieved operating income of 12.6 billion yuan, -7.0% YoY; realized net profit to mother of 1.47 billion yuan, +7.5% YoY; and basic earnings per share of 0.5 yuan, +11.1% YoY.

Multi-product collaboration calms fluctuations, and performance is in line with expectations

The company's profit level increased year-on-year in the first half of the year, mainly benefiting from multi-product collaboration and improved operating efficiency. Due to the drop in soybean meal prices, revenue from raw materials and by-products decreased by 22.7%, and the price of xanthan gum also fell by 47.5% year on year. However, sales prices of threonine and 98% lysine rose by about 13% year on year to calm performance fluctuations, and the new production capacity of xanthan gum and threonine increased production capacity and full sales. At the same time, the company continued to improve the level of automation and fine management. As a result, the number of business turnover days dropped from 66.09 days in the same period last year to 56.41 days, and the comprehensive gross margin increased to 19.50% from 18.43% in the same period last year.

By sector, the company's revenue from feed amino acid products reached 5.47 billion yuan, +15.0% year on year; revenue from umami agents reached 3.88 billion yuan, -12.7% year over year; revenue from other products was 3.291 billion yuan, -24.9% year over year.

Looking at a single quarter, 2024Q2 achieved revenue of 6.2 billion yuan, -7.3% year-on-month, and -5.1% month-on-month; realized net profit of 0.72 billion yuan, +26.7% YoY and -4.0% month-on-month, mainly affected by seasonal fluctuations in amino acid demand.

Synthetic biology industry platform may open up room for growth

The company focuses on synthetic biology, has a full chain from genome editing to product implementation, and relies on technology platforms to further reduce costs of sulphur, lysine, etc.; and actively promotes the use of synthetic biology technology to achieve lower cost production of amino acids and non-amino acid products such as yellow, color, bright, and unique brightness. The company already has 3 technical or analytical testing centers and 1 post-doctoral innovation practice base certified by departments or organizations at or above the national provincial level in this field.

Maintain high dividends and high repurchase returns for a long time to shareholders

The company has always given back to shareholders with a high dividend rate. Since listing, the cumulative dividend amount has reached 10.35 billion yuan, and the cumulative dividend rate has reached 53.6%. Since 19, the company has introduced several share repurchase programs. From April 2023 to April 2024, the company repurchased 90.64 million shares at a price of 9.49 yuan/share and cancelled them, paying 0.86 billion yuan. Meanwhile, from January to July 2024, the company's management increased its holdings by 82.56 million yuan, which is further tied to the company's interests.

Stable profit and future layout, giving a “buy” rating

Considering that the company's main business continues to reduce costs and accelerate the synthetic biology business layout, we expect the company's revenue in 2024-26 to be 28/31.9/35 billion yuan, with year-on-year growth rates of 1%/14%/10%, respectively, and net profit to mother of 3.3/3.7/4.1 billion yuan, 4%/12%, EPS 1.16/1.29/1.44 yuan/share, respectively, and a 3-year CAGR of 9%. Given the company's high concentration of main business, stable profits, and a focus on synthetic biology to open up room for growth, we maintain a “buy” rating.

Risk warning: Prices of su/lysine and corn/coal fluctuate greatly, potential competitors enter, and progress in the field of synthetic biology falls short of expectations