occurrences

On August 28, 2024, Aipu Co., Ltd. announced its 2024 semi-annual results report.

Key points of investment

Second-quarter results were under pressure, and raw material cost optimization boosted gross profit

The company's 2024H1 total revenue was 1.452 billion yuan (same decrease of 1%), and the company's fragrance business revenue grew steadily, but the revenue from the food ingredients business was greatly affected by market factors. Net profit to mother was 0.062 billion yuan (same decrease of 12%), after deducting net profit of 0.055 billion yuan (same decrease of 5%). 2024Q2's total revenue was 0.705 billion yuan (same decrease of 5%), net profit attributable to mother was 0.027 billion yuan (same decrease of 11%), and net profit not attributable to mother was 0.023 billion yuan (same decrease of 5%). On the profit side, the company's gross margin increased by 2 pct to 17.35% in 2024Q2, mainly showing the cost control effect of fragrance raw materials. The sales/management expenses ratio was 3.51%/4.87%, respectively, -0.1 pct/+1pct year on year, respectively. Taken together, the net margin decreased by 0.1 pct to 5.09%.

The flavor business grew steadily. Food ingredients were disrupted by the mismatch between supply and demand. In 2024Q2, the company's revenue for flavors/flavors/food ingredients was 0.148/0.039/0.512 billion yuan, respectively, +11%/-26%/-7%, respectively. Companies in the fragrance sector gave full play to their supply chain advantages, increased customer service, and steady revenue growth. At the same time, the cost control effect was good, and gross margin remained steady. The fragrance business was affected by the imbalance between upstream and downstream supply and demand, and revenue and profit were under pressure. The company subsequently strengthened industry collaboration and continued to increase added value. Product share optimizes profitability. Revenue in the food ingredients business also declined due to fluctuations in upstream and downstream supply and demand, but the company optimized the product selection mix and adjusted product prices in a timely and effective manner, and the gross margin of the business sector increased slightly year-on-year. The company then actively developed downstream customers and application scenarios, optimized polishing production processes, and promoted the high-quality development of the food ingredients business. 2024Q2's distribution/direct sales channel revenue was 0.134/0.564 billion yuan respectively, down 15%/2% respectively. By the end of 2024H1, the company had 1,131 dealers, a net decrease of 2 compared to the beginning of the year.

Profit forecasting

The company adheres to the concept of “flavor and fragrance as the lead, integrated development of food ingredients”, deepens its main business, and continues to pay attention to the development direction of traditional fields such as dairy products and beverages and other emerging business formats. We are optimistic about the expansion of the company's industrial chocolate production and creating a second growth curve. EPS is expected to be 0.36/0.42/0.47 yuan in 2024-2026, and the current stock price is 18/15/14 times PE, respectively, maintaining a “buy” investment rating.

Risk warning

Downward macroeconomic risks, risk of policy changes, risk of rising raw materials, falling short of expectations in industrial chocolate growth, etc.