Event: The company released its 2024 semi-annual report. Revenue for the first half of the year was 0.609 billion yuan, +12% year on year, net profit to mother 0.029 billion yuan, -6.73% year on year; of these, Q2 revenue was 0.322 billion yuan, +3.55% year over year, +12.44% month on month, and net profit to mother 0.017 billion yuan, -20.46% year on year, +30.7% month on month.

The company's gross profit margin in the first half of the year was 44.77%, a slight increase of 0.59 pct over the previous year. The company invested 0.055 billion yuan in R&D in the first half of the year, maintaining a continuous upward trend, accounting for 9.04% of revenue, an increase of 7.06% over the previous year, and is at a high level in the industry.

Enzyme revenue continued its strong performance over the past three years, +20.42% year-on-year. Enzyme preparations are “chips” in the field of industrial biotechnology. Building an expression system is the core of the development of microbial production strains, and is the key to moving products from laboratories to large-scale production.

The company has built four high-efficiency protein expression systems and corresponding large-scale fermentation systems, including Trichinella fasciata, Aspergillus niger, and Bacillus niger, built industry-leading high-throughput screening workstations, and established core systems such as general-purpose high-throughput genetic screening big data models and protein engineering transformation, greatly improving the catalytic efficiency and industrial application properties of enzyme preparations and enhancing technological innovation capabilities in the biological industry. Upgrading enzyme technology to improve product gross profit margin.

Through protein engineering, some products have improved specific enzyme activity and temperature resistance, increased the application effect of enzymes, and reduced costs. Through the expression system (chassis cells), regulatory factors have been further improved and optimized, and protein expression in chassis cells has increased. At the same time, through fermentation optimization and post-treatment improvement, the fermentation level of the product has been improved and the cost reduced.

The company firmly pursues the strategy of “technology-driven development”, is guided by market demand, adopts a R&D model with independent R&D as the main focus and cooperative R&D as a complement, and continues to increase R&D investment and development efforts for new products. In the first half of 2024, 29 new domestic authorized invention patents and 1 US patent were added. By the end of the reporting period, the company and its subsidiaries had 419 domestic authorized invention patents, 10 US authorized patents, 2 European authorized patents, 27 international PCT applications, and 43 new veterinary drug registration certificates.

The production capacity layout for each business has been basically completed, strengthening the comprehensive advantages of multi-business collaboration. The Blue Biotechnology Center, the Microecological Formulation Project for Plants, and the Animal Protection Industrial Park have all been put into production and operation; the Weifang Kangdien Refined Enzyme series product production line construction project is being successfully prepared and is expected to be put into production and operation in December 2024. The systematic production capacity layout of the company's major business segments has basically been completed.

Enzyme preparations play a positive role in reducing energy consumption and carbon emissions. Microecology plays a positive role in food safety, reducing pollution, and improving resource utilization. According to the company's estimates, the enzyme products sold by Weilan Biotech in the first half of 2024 reduced carbon dioxide emissions by about 1.2548 million tons in downstream customer applications. According to the company's estimates, phytase products sold by Weilan Biotech in the first half of 2024 reduced the use of about 0.2416 million tons of calcium hydrogen phosphate in downstream customer applications, and reduced emissions of about 0.0387 million tons of phosphorus to water and soil environments.

Investment advice: We maintain our profit forecast. We expect the company's revenue for 24-26 to be 1,273/13.99/1,558 billion yuan, respectively, and net profit to mother of 0.1/0.118/0.138 billion yuan, respectively. The PE corresponding to the current stock price is 26.3/22.3/19.0x.

Maintain a “buy” rating.

Risk warning: R&D results fall short of expectations; marketing falls short of expectations; downstream aquaculture industry cycle and risk of sudden outbreaks; risk of fluctuations in raw material prices; there is a risk that public data used in research reports may be delayed or not updated in a timely manner.