Incident Overview

The company 24H1 achieved revenue of 0.138 billion yuan, -1.34% year over year, realized net profit of 43.51 million yuan, +7.89% year over year, and realized net profit without deduction of 37.64 million yuan, or +17.30% year over year. According to this estimate, the company achieved revenue of 79.03 million yuan in 24Q2, +16.58% year-on-year, realized net profit of 25 million yuan, +23.26% year-on-year, and realized net profit without deduction of 22.42 million yuan, or +56.12% year-on-year.

Analytical judgment:

The probiotic+ animal and plant sector is driving growth, and the transformation effect is evident by business. The company's 24H1 edible probiotic products/animal and plant microecological formulations/compound food additives/probiotic technical services/other businesses achieved revenue of 1.02/0.15/0.018/0.002/0.0006 billion yuan respectively, +18.15%/+86.02%/-56.35%/-33.23%/+24.22%.

The company's original main business, blended food additives, continued to decline due to the continuous decline in the life cycle of downstream products. Currently, it accounts for less than 14% of the company's revenue, and the edible probiotics business has become the main support and growth point for the company's revenue after long-term investment and cultivation. The animal and plant microecological preparations sector benefited from the launch of fund-raising projects, production capacity began to be released, and 24H1 achieved high growth. According to the company's announcement, in August of this year, the company signed a “strategic cooperation agreement” with Runhe Supply Chain Company to provide it with overall solutions for the upgrading and optimization of products involving pet staple foods. We believe that judging from 24H1's operating data, the effects of its business transformation from traditional blending to mainly probiotic business have already been shown.

Product structure changes raise gross profit levels and increase profitability

On the cost side, the company achieved gross profit margins of 54.98%/55.46% for 24H1/24Q2, respectively, +3.05pct/+4.17pct year-on-year, respectively. We expect the gross margin increase mainly driven by the high-margin probiotic business. The gross margins of the company's 24H1 edible probiotic products/animal and plant microecological formulations/compound food additives/probiotic technical services/other businesses are 63.74%/30.25%/25.25%/80.16%/12.21%, respectively, compared to -1.03/-9.78/-5.99/+69.07/-7.69pct, respectively. On the cost side, the company's 24H1 sales/management/R&D/finance expense ratios were 11.54%/9.75%/11.63%/-9.4%, respectively, -0.23/+0.73/+0.82/-1.55pct, respectively. Among them, the 24Q2 sales/management/R&D/finance expenses rates were 13.24%/9.03%/10.18%/-7.74%, respectively, +0.33/ -0.15/-2.55pct, respectively, excluding financial expenses due to changes in the pace of R&D investment and interest income In addition to the changes, the company's overall cost rate level remained stable. On the profit side, the company achieved net profit margin of 31.51%/31.63% year-on-year for 24H1/24Q2, +2.69pct/+1.71pct, respectively; 24H1/24Q2 achieved net profit margins deducted from mother 27.26%/28.37%, +4.33pct/+7.18pct, respectively, with a significant increase in profitability.

The production capacity layout has been implemented one after another and equity incentives have been supported. Long-term growth is worth expecting the company to actively raise capital to lay out production capacity through IPOs, refinancing, etc., and plans to build various projects such as food ingredients projects and microecological preparation production base projects. Among them, the animal and plant microecological preparation production base has basically completed equipment commissioning and production trial operation during the reporting period. It is expected to be officially delivered to production and operation in the second half of the year. The R&D and production project in the food sector is undergoing civil construction work, and is expected to be put into operation in June 2025. We believe that the company's production capacity side layout is forward-looking. Seize probiotic business opportunities in a timely manner before the compounding business declines, complete production capacity reserves, and release equity incentive plans on the management side to promote strategic transformation. The company's long-term growth is worth looking forward to.

Investment advice

Referring to the company's latest financial report, we lowered our 24-26 revenue forecast of 0.462/0.643/0.934 billion yuan to 0.376/0.472/0.616 billion yuan, and lowered the company's 24-26 EPS forecast of 0.52/0.74/1.14 yuan to 0.49/0.63/0.85 yuan. Corresponding to the closing price of 14.12 yuan/share on August 21, PE was 29/23/17 times, respectively, maintaining the “buy” rating.

Risk warning

Probiotic business expansion falls short of expectations, compound business decline exceeds expectations, risk of raw material price fluctuations