Yaxiang Co., Ltd.: A leading global company in the natural fragrance segment. Yaxiang Co., Ltd. specializes in natural flavors, synthetic fragrances, cooling agents, etc., mainly as raw materials for flavorings or directly as food additives. The terminal products are mainly used in the food, beverage, daily chemical and other industries. As of the 2024 mid-year report announcement date, the company was able to mass-produce nearly 300 kinds of fragrances, including more than 160 natural fragrances. In recent years, the company's revenue and net profit to mother have been stable overall. In 2023, the company achieved revenue of 0.63 billion yuan, a year-on-year decrease of 10.66%; net profit to mother was 0.08 billion yuan, a year-on-year decrease of 39.18%. With 2024Q1-3, the company achieved revenue of 0.576 billion yuan, a year-on-year increase of 21.37%; net profit to mother was 0.045 billion yuan, a year-on-year decrease of 34.58%.

The global flavor and fragrance market is growing steadily, and international giants occupy an absolute dominant position. Flavors and fragrances are substances with functions such as adding, adjusting, fixing, and improving the smell of products. Among them, fragrance is the main raw material for blending fragrance, while fragrance is an artificially blended fragrance mixture. According to downstream uses, it can be divided into edible fragrance, daily chemical fragrance, tobacco flavor, and other flavors. The size of the global flavor and fragrance market in 2022 was 29.2 billion US dollars, and the overall market showed steady growth. In terms of the downstream market, the food and daily chemical industry, as the main downstream application area, has relatively stable overall demand; the tobacco flavor, especially the e-cigarette market, is expected to open up new incremental demand. According to data and forecasts from the Commercial Enterprise Research Institute, the global e-cigarette market was 13.7 billion US dollars, and is expected to grow to 26.6 billion US dollars in 2023, with a CAGR of 6.25%. Judging from the supply pattern, in 2013-2019, the global flavor and fragrance market was highly concentrated; due to the late start, the overall domestic market showed a small and scattered pattern. Some excellent fragrance companies have formed obvious advantages in specific varieties. For example, the market shares of vanillin and cooling agents of Yaxiang Co., Ltd. reached 30% and 80% respectively in 2019.

The product range is rich and the customer resources are rich, and the profit from starting production at the Thai base has reached a new level. The company's main product range is rich and customer resources are abundant, and it has achieved full coverage of the top ten international fragrance companies such as Givaudan, Firmenich, and International Flavors and Fragrances, and has also achieved sales at well-known domestic and foreign consumer brands such as Mars Wrigley, Moniz International, and Yueke. In November 2024, the company issued an announcement stating that the first phase of the fund-raising project “Yaxiang Biotechnology (Thailand) Co., Ltd. Production Base Project” has gone through early trial production, completed installation and commissioning of production processes, machinery and equipment, and the related production line has recently been officially put into operation. The construction of the first phase of the project includes a fragrance plant production line of 1,000 tons of vanillin, 200 tons of oak moss, 100 tons of benzaldehyde, 50 tons of benzyl alcohol, 100 tons of methyl cinnamate, 150 tons of coolant, and 150 tons of xylitol, which is expected to increase profits of 0.125 billion yuan. We believe that the completion and commissioning of the Thai base project can effectively avoid the impact of tariffs and expand the scale of product production capacity, thereby increasing the company's overall profit level and opening up room for the company's long-term growth.

Investment advice: We expect net profit to be 0.065, 0.129, and 0.161 billion yuan in 2024-2026, and corresponding dynamic PE is 38X, 19X, and 15X, respectively. The company is a leading company in natural flavors and cooling agents. It has rich customer resources and broad biotechnology layout prospects. The commissioning of the first phase of the Thai base project is expected to help reach a new level of profit. We are optimistic about the company's future development space, covered for the first time, and gave it a “recommended” rating.

Risk warning: Fluctuating prices of major raw materials, new product development, environmental protection, overseas business expansion falling short of expectations, etc.