The company's main business includes R&D, production and sales of upstream and downstream vitamin D3 products, as well as pharmaceutical products for chronic diseases such as cardiovascular and neurological diseases. 1) The main products in the vitamin sector include lanolin cholesterol, vitamin D3, 25-hydroxyvitamin D3, etc. Lanolin cholesterol (NF grade cholesterol) with a purity of at least 95% is the main raw material for the production of vitamin D3. Vitamin D3 is widely used in feed additives, food additives, nutritional health products and pharmaceuticals, and the scope of application and market demand are expanding day by day. 25-hydroxyvitamin D3 is an active metabolite of vitamin D3, has higher biological activity, and does not require liver metabolism. 25-hydroxyvitamin D3 has a tendency to replace common vitamin D3. 2) The main products in the pharmaceutical manufacturing sector are valsartan amlodipine tablets (I), doxofloxacin injections, levofloxacin tablets, lipoic acid injections, escitalopram oxalate tablets, omeprazole sodium bicarbonate capsules, dobaszide tablets, etc. It is mainly a therapeutic drug in the field of chronic diseases, covering various fields of use such as cardiovascular, antibacterial and anti-inflammatory drugs, digestive system, and nervous system. 3) In the first three quarters of 2024, the company achieved operating income of 0.938 billion yuan, an increase of 4.43% year on year; realized net profit of 0.241 billion yuan, an increase of 62.13% year on year; realized deducted non-net profit of 0.203 billion yuan, an increase of 52.55% year on year.

Pharmaceuticals are the company's main source of revenue. 1) In 2023, the company achieved sales of 0.367 billion yuan of vitamin D3 and D3 analogues, accounting for 33.52% of the company's revenue, a year-on-year decrease of 4.89%. The company uses lanolin as a raw material to produce NF grade cholesterol for vitamin D3 production. The company's vitamin D3 production cost is much lower than other companies in the industry. 2) In 2023, the company achieved sales of 0.141 billion yuan of lanolin and its derivatives, accounting for 12.85% of the company's revenue, a year-on-year decrease of 32.65%. 3) In 2023, the company's pharmaceuticals achieved sales of 0.572 billion yuan, accounting for 52.27% of the company's revenue, a year-on-year decrease of 28.61%. In recent years, 9 of Huayuan Pharmaceutical's products have obtained drug registration certificates (deemed to have passed the consistency evaluation) or supplementary application approval notices. Of these, 6 products were collected in selected countries or regions.

Corporate bonds raise funds for multiple vitamin projects to promote “one vertical, one horizontal” development strategy. 1) After deducting distribution costs, the funds raised are planned to be used for calcitol API projects, calcitol preparation projects, projects with an annual output of 6,000 tons of vitamin A powder and 20,000 tons of vitamin E powder, projects with an annual output of 5,000 tons of vitamin B6, projects with an annual output of 200 tons of biotin, and high-end generic drug research and development projects. 2) In 2024, a new fund-raising project “10,000 tons of L-alanine (fermentation method) and biological manufacturing pilot base project” was added. L-alanine is the main raw material for the production of VB6 and will further extend the company's VB6 industry chain upstream to form a cost advantage. At the same time, L-alanine is widely used in feed additives, pharmaceuticals, nutritional health food and daily chemicals, etc., and has a large market space. 3) The company is actively promoting the construction of convertible bond raising projects. The project with an annual output of 5,000 tons of vitamin B6 and the biotin project with an annual output of 200 tons aims to be completed and put into operation one after another by the end of the year, and the calciferol APIs and formulation projects have entered the implementation stage.

The company's VD3 global market share is about 30%, and the VD3 market price reached a high level in the second half of 2024, and the company is expected to benefit. 1) Vitamin D3 is mainly used in feed, less often in food and medicine. The global theoretical demand for vitamin D3 is about 14,793 tons, of which China's theoretical demand for vitamin D3 is about 2,928 tons. 2) The company has basically formed a complete vitamin D3 industry chain layout. The company's global market share of vitamin D3 is about 30%, and the global market share of NF grade lanolin cholesterol is about 70%. 3) According to Baichuan Yingfu, the market price of vitamin D3 continued to rise and remained high from May to July 2024. On November 28, the market price was 230 yuan/kg, an increase of 342.1% compared with the beginning of the year. The dealer market is fluctuating. Currently, mainstream transaction prices are 220-240 yuan/kg. Some high prices are close to 250 yuan/kg, but new high-priced orders are rare. The company has a high market share in the industry, and we believe that the VD3 price increase in the second half of the year is expected to increase the company's profitability.

Risk warning: macroeconomic environment changes and geopolitical risks; risk of product price fluctuations; risk of downstream market demand falling short of expectations.