Incident: The company released its 2024 three-quarter report. In the first three quarters, the company achieved revenue of 0.82 billion yuan, net profit of 0.183 billion yuan, net profit of 0.183 billion yuan, net profit of 0.173 billion yuan compared to year, +29.60% year on year; 24Q3 achieved revenue of 0.289 billion yuan, +19.92% year on month, +3.51% month on month, net profit to mother 0.063 billion yuan, year-on-month- 4.53%, net profit not attributable to mother of 0.062 billion yuan, +27.08% YoY, +2.55% month-on-month.

The sweetener category increased rapidly year over year and accelerated month-on-month, and the amount of alloone sugar began to be released. By product, 24Q3 achieved revenue of 0.082/0.151/0.045 billion yuan for prebiotics/dietary fiber/healthy sweeteners, respectively, and +8.95%/+22.52%/+29.89%. The main revenue share was 29.23%/54.14%/16.25%, respectively. The growth rate of healthy sweeteners increased significantly from month to month (Q2 -19.03%). The growth rate of prebiotics and dietary fiber slowed to a certain extent. Looking at the subregion, 24Q3 companies achieved main revenue of 0.103/0.177 billion yuan respectively, or -10.11%/+42.55% over the same period, accounting for 36.87%/63.13% of main revenue. The high increase in overseas revenue contributed mainly to the increase. It is estimated that the amount of alloone sugar released contributed to overseas revenue.

The conversion of new production line depreciation slightly disrupted profitability, and overall performance was steady, moderate and positive. The gross margin of the 24Q3 company was 32.52%, or -1.16/-0.70pct, respectively. The slight decline in gross margin is estimated mainly due to an increase in depreciation after the company's new production capacity was put into operation on May 29 (the company's fixed assets rose from 0.318 billion yuan at the end of Q1 to 0.899 billion yuan at the end of Q3). From a cost perspective, the purchase unit price of corn starch/glucose monohydrate/sucrose/tapioca starch as the main raw materials purchased by 24Q3 was -10.05%/-7.28%/-10.52%/-10.44%, respectively. The main reason for the cessation of procurement of crystalline fructose Q3 was that the company already had its own production capacity after the new production capacity was put into operation.

In terms of expenses, the company's sales/management/R&D/finance expense ratios in 24Q3 were -0.67/+0.71/-2.02/+0.44pct, respectively, and +0.31/-0.00/-1.28/+0.08pct month-on-month, respectively. Large changes in R&D cost rates are presumed to be phased R&D investment fluctuations. Overall, the company achieved net interest rate of 21.81% in 24Q3, +0.96pct year over year, and -1.84pcts month-on-month; net interest rate of 21.31%, +1.20pcts year over year, and -0.20pct month-on-month. Overall profitability is stable, and profit margins are expected to gradually boost the scale effect brought about by the rising capacity utilization rate of new production lines.

A fund-raising plan for convertible bonds was announced to expand overseas production capacity. On September 20, the company announced that it intends to issue convertible bonds to raise no more than 0.78 billion yuan for the construction of three projects at the Thai plant (adding 0.012 million tons of crystalline alloone sugar, 0.007 million tons of liquid alloone sugar, 0.02 million tons of resistant dextrin, 0.006 million tons of oligofructose production capacity), the US International R&D Center, and the drying expansion and comprehensive upgrading of functional sugar (disclosed in the August 29 announcement). Among them, the Thai factory has advantages such as the origin of raw materials and avoidance of potential trade frictions, while the US R&D center can strengthen the company's grasp of cutting-edge technology and development trends in the global market, and can also form a good synergy with the Thai factory to enhance R&D service docking capabilities for international customers.

Profit forecast and investment advice: Based on the three-quarter earnings report, we lowered our previous profit forecast. The company's net profit for 24-26 is 0.257/0.344/0.452 billion yuan (previous value was 0.278/0.379/0.494 billion yuan), +33%/+34%/+31% year-on-year, corresponding to 24-26 EPS of 0.80/1.07/1.40 yuan, and the corresponding PE is 22x/17x/13x. Maintain a “buy” rating.

Risk warning: downstream demand falls short of expectations; capacity construction falls short of expectations; industry competition increases risk; risk of fluctuations in raw material prices; exchange rate risk.