On October 23, Huaheng Biotech released the “2022 Report on the Issuance of A Shares to Specific Targets”. The company's fixed increase project was successfully implemented, and the total capital raised was 0.7 billion yuan (net 0.684 billion yuan). We expect it will help the company to smoothly advance its new project. Considering that the company's new projects are entering a phase of gradual commissioning and launch, future growth can be expected, and the “buy” rating is maintained.

The fixed increase was successfully implemented. The issuance targets were mainly local state-owned enterprises and private equity funds

According to the company's announcement, the final issue price for this fixed increase was 33.14 yuan/share. The total capital raised was 0.7 billion yuan less than the fixed increase plan announced by the company on September 4, which raised 0.99 billion yuan, and the share dilution ratio was reduced.

There are 9 distribution targets. Among them, the Anhui Agricultural Industrialization Development Fund/Anhui Guoyuan Fund/Chuanghe Xincai (Xiamen) /Hubei Cultural Tourism Capital Holdings/Guangzhou Yuekai mainly had local state-owned assets. The 5 companies invested a total of about 0.45 billion yuan (64% of the total amount raised), and the rest were mainly private equity funds. According to the company's fundraising plan, the capital raised is mainly used for the construction of projects such as 0.05 million tons/year of succinic acid and 50,000 tons/year of malic acid. We believe that the implementation of the fixed increase will help the company's new project to proceed smoothly.

The amino acid economy is still weak, and new projects are expected to gradually make up prices with volume

According to Boya Peace News, the price of valine/tryptophane/arginine was 12.6/54.5/30 yuan/kg on October 23, -25%/-29%/-19% compared to the beginning of the year. The economy is still weak due to factors such as the expansion of industry production and the decline in competitive soybean meal prices. In terms of new projects, the 24-26 company's 0.05 million tons/year of succinic acid, 0.05 million tons/year of malic acid, 0.05 million tons/year PDO, and 0.06 million tons/year alternating production projects for three-chain amino acids and tryptophan gradually ushered in the commissioning and release phase, which is expected to help the company's future growth with volume compensation.

Profit forecasting and valuation

Considering that products such as valine are still weak, we expect the company's 24-26 net profit to be 0.35/0.49/0.62 billion yuan (previous value 0.4/0.54/0.69 billion yuan), -22%/+40%/+25%, and EPS corresponding to 0.25 billion yuan in total share capital after a fixed increase of 1.41/1.97/2.47 yuan, referring to comparable companies' 25-year Wind consensus average of 26xPE, giving the company a 25-year 26xPE target price of 51.22 Yuan, maintaining a “buy” rating.

Risk warning: Risk of new construction projects falling short of expectations; risk of loss of core technology.