Key points of investment

Incident: Huaheng Biotech's joint venture subsidiary Hengyu Biotech's “Key Technology and Industrial Application for Biological Method Production of L-Methionine” passed the scientific and technological achievement certification. Hengyu Biotech has built the first 3,000 tons/year biological production line in China to produce L-methionine by biological method.

The methionine market space is vast, and the profit level of the industry continues to improve under the pattern of oligopolistic competition. As the only sulfur-containing amino acid necessary for humans and animals, methionine is widely used in the pharmaceutical, food and feed industries. The global demand will reach 1.6 million tons in 2023, and the market space is broad. The supply side of methionine is concentrated. After years of price competition, the industry's oligopoly pattern was strengthened. The industry CR4 reached 81.8% in 2023. Complex methionine production processes and higher capital expenditure thresholds form strong industry barriers. Some small production capacity has gradually withdrawn, and the industry pricing logic has gradually moved from fierce price competition to oligopoly pricing. Since this year, major companies have concentrated production restrictions to drive methionine prices to rise. I am optimistic that the future profitability of the industry will gradually improve.

It is the first bio-methionine production line in China, and has a lot of room for cost reduction. Currently, global methionine is basically produced using chemical methods. Seagie uses biological methods to produce 0.08 million tons/year L-methionine in Malaysia. Academician Zheng Yuguo's team has been deeply involved in the key technology and industrial application of L-methionine biosynthesis for more than ten years, and built the first domestic production line for the production of L-methionine by biological methods. We believe that compared with chemical methods, energy consumption and wastewater emissions will be significantly reduced. In addition, biological methods have strong cost reduction capabilities as the process matures and production scales up. Lower costs.

The company's low-cost dosage logic is unbroken, and bio-methionine is expected to become the company's next growth point. The company launched products such as arginine, PDO, succinic acid, malic acid, and isoleucine this year. The production capacity of the company's main products reached 0.271 million tons/year in '24, an increase of 324% over last year. This year, the prices of the company's main products declined by varying degrees due to lower downstream feed demand, raw material prices, and alternative soybean meal prices. However, we believe that the company's core competitiveness stems from low cost volume. The new product volume is the core growth logic of today and next. Compared with the company's other products, the market space of 10,000 tons or 100,000 tons. The market space exceeds one million tons, which is expected to become the company's next growth point.

Investment advice: The company is building a synthetic biology industrialization platform. The application of new technology brings significant cost advantages, ensures that the company maintains a high level of profit, and the volume of products brings about a continuous increase in profits. The company is expected to achieve net profit of 0.572/0.836/0.951 billion yuan in 2024-2026, an increase of 27.42%/46.06%/13.77% year-on-year.

The current market value corresponds to PE of 17.74/12.15/10.68 times, maintaining the “buy” rating.

Risk warning: The volume of new products falls short of expectations, production of bio-methionine falls short of expectations, and the competitive landscape of the industry intensifies.