The company is based on a functional sugar circuit, has an excellent customer structure, continuously improves product layout and optimizes production capacity. The demand for gut health and sugar reduction is jointly promoting the continuous expansion of the industry. The company has large-scale production capacity in multiple categories and has a leading edge in products such as resistant dextrin. In the medium to long term, the company's continuous development and expansion of new products and overseas production capacity layout are expected to open up room for growth. Covered for the first time, giving a buy rating.

Key points supporting the rating

It is a leading functional sugar company, and its revenue performance has maintained high growth in the past five years. The company has been deeply involved in the functional sugar industry for nearly 20 years, continuously enriching the variety of products, forming four major series of products: prebiotics, dietary fiber, healthy sweeteners, and other starch sugars (alcohol). Customers include well-known food, beverage and health products companies at home and abroad. In 2019-2023, the company's revenue increased from 0.421 billion yuan to 0.868 billion yuan, and the CAGR was 19.83%; the company's net profit to mother increased from 0.083 billion yuan to 0.193 billion yuan, and the CAGR was 23.49%. With 2024Q1-Q3, the company's revenue also increased 25.48% to 0.82 billion yuan, and net profit to mother also increased 29.19% to 0.183 billion yuan, maintaining a high level of growth.

The market space for dietary supplements is expected to expand, and the multi-product layout will fully benefit. As dietary supplements, the positive significance of prebiotics and dietary fiber for human health is constantly being discovered. Driven by increasing consumer awareness, upgrading the health of food and beverage products, and related policies, the scale of prebiotics and dietary fiber is expected to continue to expand. According to the China Food Additives and Ingredients Association, the global and Chinese prebiotic production values will reach 18.548 billion yuan and 3.814 billion yuan respectively in 2026, and the CAGR in 2020-2026 will be 4.86% and 7.80% respectively; according to QYR Research data, 2

The revenue of the global and Chinese dietary fiber industries in 2008 was 3.7 billion yuan and 0.9 billion yuan respectively. The estimated CAGR for 2024-2030 is 10.03% and 13.22%, respectively. The company occupies a leading position in several segments, fully benefiting from the expansion of the dietary supplements industry.

The new sugar substitute has great potential, and the company has a leading edge in technology. Compared to other natural sweeteners, allodonose has physiological functions such as: 1) reducing fat and weight loss, regulating blood sugar, and preventing and treating type 2 diabetes and its complications.

2) It has strong stability and can cause Maillard reactions, and can be used in food fields such as baking. According to GlobalMarket Insight agency statistics, the global alloxone sugar market is $0.128 billion in 2023 and is expected to reach $0.44 billion by 2032, with a CAGR of 14.60% during the period. Currently, countries such as the US, Japan, and South Korea have all approved the use of aloxone sugar as a food ingredient. Our country is still in the process of approval, and the company's aloxone sugars are all export products. In the future, after domestic approval is approved, it may lead to the release of domestic demand. The company's bioenzymatic transformation method for preparing allodonose has leading technical advantages, leading the market in conversion rate and production cost control.

New production capacity was released one after another, and the layout of the Thai production base opened up a second growth curve. In May 2024, the company's 30,000 tons of dietary fiber and 150 million tons of crystalline sugar project was put into operation, breaking the production capacity limit. In the medium to long term, the company has the ability to continuously develop and launch new products, and maintains a rhythm of launching 2-3 new products every year. It is expected that it will continue to create star products. In addition, the company's production base in Thailand is expected to enjoy the advantages of local raw material costs and tariffs, better expand international customers, reduce potential trade frictions to a certain extent, and create a “second Blum Innovation Park” growth curve.

valuations

Based on the revenue growth and comprehensive profitability of the company's products, the company's net profit for 2024-2026 is estimated to be 0.25 billion yuan, 0.332 billion yuan, and 0.441 billion yuan, corresponding price-earnings ratios of 21.5 times, 16.2 times, and 12.2 times. First coverage, giving a buy rating.

The main risks faced by ratings

Project construction falls short of expectations, trade policy uncertainty, customer development falls short of expectations, and industry competition intensifies.