Intensified competition and increased costs caused a sharp drop of 21.72% in Huaheng Biotechnology's net profit in the first half of the year. It is stated that the sales channels of the core product L-leucine need to be further expanded and the market share needs to be increased. Huaheng Biotechnology's refinancing plan has been registered and effective, but it indicates that if the project fails to generate benefits as expected or the actual income is lower than expected, there may be a risk of reduced profitability.
On August 27, the "Science and Technology Innovation Board Daily" reported (Reporter Zheng Bingxun) that the performance of Huaheng Biotechnology, a leading synthetic biology company (688639.SH), in the first half of the year was a "thunderclap"!
The semi-annual report for 2024 released tonight shows that Huaheng Biotechnology achieved revenue of 1.016 billion yuan, a year-on-year increase of 19.57%. The net profit attributable to the parent company and the non-net profit attributable to the parent company were 0.15 billion yuan and 0.148 billion yuan, respectively, a decrease of 21.72% and 22.14% year-on-year.
In response to the decline in net profit, Huaheng Biotechnology gives two explanations. Firstly, with the increase of new production capacity in the industry, intensified market competition has led to a decline in the price of leucine products compared to the same period last year, affecting the company's profit. Secondly, as the company's operating scale expands, the increase in relevant expenses while launching new products has led to a decrease in overall profit.
The semi-annual report shows that Huaheng Biotechnology's sales expenses in the first half of the year were 31.5711 million yuan, a year-on-year increase of 32.02 percentage points. The main reason for the increase is the increase in the number of sales personnel and the average salary.
In fact, the "declining trend" of Huaheng Biotechnology's performance has already been revealed in the first quarter of this year.
The first quarter report shows that Huaheng Biotechnology achieved revenue of 0.501 billion yuan, a year-on-year increase of 25.12%. The net profit attributable to the parent company was 86.5741 million yuan, a slight increase of 6.62% year-on-year. Compared with the first quarter of 2023, revenue and net profit growth rates declined by 22.90% and 40.41%, respectively, for the same period this year.
According to the information, Huaheng Bio is a synthetic biology enterprise mainly engaged in the research, development, production, and sales of bio-based products. Currently, its main products include: amino acid series (alanine series, L-valine, isoleucine, tryptophan, arginine), vitamin series (D-calcium pantothenate, D-Panthenol, inositol), bio-based new material monomers (1,3-propanediol, succinic acid), as well as malic acid, arbutin, and other products, which can be applied in the fields of intermediate, animal nutrition, daily care, functional food and nutrition, and plant nutrition.
Among them, the amino acid series products have always been the main source of income for Huaheng Bio. During the reporting period, the revenue of amino acid products reached 0.743 billion yuan, accounting for 73.09% of the overall revenue.
Currently, Huaheng Bio's domestic customers include Zhejiang Huahai Pharmaceutical, Muyuan Foods, New Hope Liuhe, and overseas customers include BASF, Ajinomoto, ITOCHU, and Dezhixin.
It is worth mentioning that in recent years, Huaheng Bio has been actively promoting its refinancing plan. The company plans to issue no more than 68.580446 million shares to specific targets, raising no more than 1.689 billion yuan, which will be used for the construction of the "annual production of 0.05 million tons of bio-based succinic acid and bio-based product raw material production base project", the "annual production of 0.05 million tons of bio-based malic acid production project", and the "supplementary working capital project".
In June of this year, the private placement plan has been registered and Huaheng Bio submitted the "Registration Draft" of the private placement plan at the end of July.
However, in the 2024 interim report, Huaheng Bio changed its tone when mentioning these projects, stating that if the projects fail to generate benefits as scheduled or if the actual benefits are lower than expected, there may be a risk of reduced profitability.
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In addition, Huaheng Biology also emphasized the L-valine product when discussing market competition risks. They mentioned that the company's sales channels for L-valine need further expansion, and its market share needs to be increased. In the future, if the competition in the L-valine industry intensifies and the downstream market demand decreases, it will have an adverse impact on the company.
However, faced with the unfavorable situation of core business and product competition, Huaheng Biology seems to be seeking new growth points.
At the same time as the release of the semi-annual report in 2024, Huaheng Biology announced that they plan to sign a "Technical License Agreement" with the related party Europe United Biology, obtaining the exclusive implementation license for the other party's production technology of tryptophan for 20 years.
Huaheng Biology stated that the cooperation with Europe United Biology is conducive to promoting the company's future strategic development, enriching the company's product structure, and consolidating and enhancing the company's position in the industry. It is understood that tryptophan plays an important role in the growth, development, and metabolism of humans and animals, and it is known as the second essential amino acid.