It successfully acquired Yipin Biotech and became a leading corn deep processing company. Xinghu Technology started with MSG. Prior to the acquisition of Yipin Biotech, the company was mainly engaged in food additives, pharmaceutical intermediates, biological raw materials and formulations. After successfully acquiring Yipin Biotech in '22, the company's main business added feed additives, monosodium glutamate and biological organic fertilizer businesses, making it a leading corn deep-processing company. Its performance increased dramatically. Revenue increased from 1.235 billion yuan in 2021 to 17.486 billion yuan in 2022, an increase of 329.51% over the previous year; net profit to mother increased by 329.51% from 0.106 billion yuan in 2021 The billion yuan increased to 0.608 billion yuan in 2022, up 299.85% year over year. With the further integration and collaboration of the two companies, Xinghu Technology's performance continues to improve. In the first three quarters of 2024, the company achieved revenue of 12.79 billion yuan, a year-on-year increase of 0.48%; net profit to mother was 0.677 billion yuan, an increase of 38.38% over the previous year.

Amino acid industry: Reduced soybean meal replacement helped release demand, and the price of sulysine ushered in booming growth.

On the demand side, benefiting from the trend of soybean meal reduction and substitution policies, industrial amino acid demand represented by Su and lysine will usher in long-term growth; on the supply side, the production capacity pattern of Su and lysine shows a leading trend. Leading global amino acid companies represented by Xinghu Technology have certain advantages in maintaining low unit costs, resource recycling, rich product structures, obtaining product pricing rights, and effectively meeting downstream demand. In the future, the scale advantage is expected to be further highlighted under the trend of gradual integration of the industry.

Flavoring agent industry: The monosodium glutamate industry presents an oligopoly, and the I+G market ushered in rapid development. China is the world's largest producer and consumer of MSG. Production and demand reached 2.69 million tons and 2.68 million tons respectively in 2023. Growth in food processing, especially prepared dishes, is expected to drive demand for MSG; on the supply side, the MSG industry pattern shows a stable pattern and high market concentration, and the country is gradually forming a competitive pattern dominated by three leading companies, Fufeng Group, Meihua Biotech and Xinghu Technology. I+G, also known as “strong monosodium glutamate”, has maintained steady growth in overall production and demand in the industry, and the supply pattern is mainly dominated by Seagate, Meihua Biotech, and Xinghu Technology.

Xinghu Technology: Production capacity and capital advantages are gradually being highlighted, and profitability is expected to continue to increase. Xinghu Technology's production capacity is among the highest in the world. In the context of the industry's overall trend of integration and backward production capacity, the scale advantage is expected to be further highlighted; after Xinghu Technology successfully acquires Yipin Biotech, it has significantly improved its main business capacity, asset structure, solvency, and cost control, and profitability is expected to continue to improve. Under the characteristics of high barriers to capital investment in the industry, capital advantages are prominent. In addition, the company's dividend and dividend rate both increased in 2023, and the cash dividend ratio for 23 was 93.13%; based on current prices, the dividend rate was 5.63%.

Investment suggestion: The company is a leading global enterprise for deep processing of corn. With the high growth in the Soviet and lysine boom and the gradual increase in industry concentration, prices are expected to enter an upward channel. Coupled with further integration and collaboration with Yipin Biotech, the company's performance is expected to further improve in the future. We expect the company's net profit to be 0.96, 1.178, and 1.371 billion yuan respectively in 2024-2026, EPS 0.58, 0.71, and 0.83 yuan respectively, and the PE corresponding to the current price (2024/12/5) is 12X, 10X, and 8X, respectively. We are optimistic about the company's future growth space, covered it for the first time, and gave it a “recommended” rating.

Risk warning: Fluctuations in major products and increased market competition, large fluctuations in raw material prices, improper environmental management, etc.