The company has been deeply involved in the field of animal nutrition for many years and has firmly implemented the “double pillar” development strategy of leading methionine and accelerated development of specialty products. The company is a leading global manufacturer of animal nutritional additives, focusing on providing innovative and sustainable nutritional solutions in the field of animal feed, serving approximately 4,200 customers in more than 110 countries around the world. The company's main products include methionine, a full range of vitamins, various specialty products, etc. The company has been actively implementing the “double pillar” strategy, which is to accelerate the development of special businesses while continuously consolidating its leading position in the methionine industry. In 2023, the company's functional products and specialty products accounted for 66.80% and 27.26% of revenue respectively, with gross profit accounting for 37.90% and 54.31% respectively. The total revenue and gross profit share of both exceeded 90%, which is the main support for the company's performance.

The company's overall revenue has grown steadily in recent years, and profit bottomed out and rebounded in the first three quarters of 2024. The company's net profit for the first three quarters of 2024 was 1.003 billion yuan, up 3016% year on year, and the company's profit rebounded sharply. This was mainly due to the continued increase in liquid methionine penetration rate driving strong sales growth and growth in the specialty products business. We believe that the company's profit level is expected to continue to recover as the company continues to release methionine products and their prices recover, the development of specialty products accelerates, the company's management level continues to improve, and the impact of asset impairment is eliminated.

Methionine supply and demand are expected to tighten in the future, and methionine prices may remain strong. Global methionine demand is still growing at a moderate rate. The global market demand for methionine reached 1.6 million tons in 2022, and it is expected that there will be about 0.2 million tons of new demand every two years in the future. The future growth of the methionine market is mainly due to the expansion of the poultry farming industry in developing countries, as well as the expansion of the aquaculture and ruminant markets. We believe that overseas leaders such as Evonik and Sumitomo have gradually phased out backward production capacity in recent years. Furthermore, new production capacity is entering at a slower rate than originally planned. Supply and demand are expected to tighten in the future, and methionine prices may remain strong. The company is expected to increase its market share and competitive advantage through strategies such as improving the efficiency of existing production lines, promoting coated methionine, and increasing the penetration rate of liquid eggs, and seize opportunities in changing industry dynamics.

The company is also currently one of the few producers in the world that can simultaneously produce solid and liquid methionine, and has methionine production platforms in China and Europe. The company is the world's largest producer of liquid methionine. The future increase in demand for liquid methionine will benefit from the overall increase in methionine demand and the increase in liquid methionine penetration rate brought about by the large-scale and intensive transformation and upgrading of the aquaculture industry. The company's Nanjing plant has become one of the world's leading, technologically advanced and competitive liquid methionine production bases in terms of production scale and cost control; in September 2022, the second phase of the Nanjing factory's liquid methionine plant with an annual output of 0.18 million tons was completed and put into operation, and the overall production capacity of liquid eggs at the Nanjing plant reached 0.35 million tons per year, which had a significant scale effect.

In March 2024, construction of Quanzhou Quanhui Petrochemical Industrial Zone began. The project plans an annual output of 0.15 million tons and a total investment of about 4.9 billion yuan. It is expected to be put into operation in 2027.

The company expanded its product line with endogenous epitaxial specialty products and became a global leader in animal nutrition specialty products.

The company has a wide variety of specialty products, covering ruminant business, aquatic product additives and innovative alternative protein products, products to improve animal health, palatability products, etc. The company continues to increase investment in R&D, and has acquired N&D, FramelCo, and Nor-Feed externally to create synergy effects in the market, products and operations, and continuously launch new products, aiming to become one of the world's leaders in animal nutrition specialty products.

The company is the world's leading producer of rumen protective methionine. As the dairy market recovers, the anti-rumen methionine market is expected to expand at an accelerated pace. After 2024, international milk prices began to recover, and the upward trend was obvious, which favored the expansion of the rumen protection methionine market. We believe that with the improvement of the global dairy market, the market demand for rumen protection methionine is expected to be further boosted in the future.

FeedKind? The cooperative development enabled the company to successfully enter the new field of alternative proteins, which has great potential for development. The company cooperated with Calysta to establish Kadisu to develop FeedKind (FeedKind?) It has the potential to become a potential disruptor in the aquafeed industry. Is Kaidisu's Chongqing factory the world's first Ficom? A large-scale production unit project for innovative protein products. The first phase of the project has an annual production capacity of 0.02 million tons; as of 3Q24, the plant has carried out a total of 30 trial production times, and it is estimated that it will still take some time to reach the target production capacity. During the recent trial production process, its key technical indicators have all improved significantly; commercially, the project has completed exports to Europe and the United States, mainly for the pet food sector.

What do we think FeedKind? Natural gas (mineral resources) can be directly converted into feed protein (protein). Unlike the previous path of mineral resources - vegetable protein - feed protein, which largely represents the revolution in feed protein sources, feed protein is expected to enter the factory stage, getting rid of the shortcomings of vegetable protein (soybeans, rapeseed, etc.) being dependent on land during the planting process and vulnerable to weather and other factors, which is expected to provide an important guarantee for food security.

The company has remarkable comprehensive advantages and good long-term growth: 1) overseas strategic layout, covering a global production and sales network; 2) rich product portfolio to provide customers with comprehensive solutions; 3) continuously increase R&D investment to achieve innovation driven by customer needs; 4) significant cost advantages, scientific and reasonable low-cost operation; 5) focus on health, safety and environmental protection (HSE), and have full potential for long-term sustainable development.

Profit forecast: We expect the company to achieve operating income of 15.275/16.479/17.814 billion yuan in 2024-2026, and realized net profit of 1.326/1.529/1.738 billion yuan respectively, corresponding EPS of 0.49/0.57/0.65 yuan, respectively. The PE multiples corresponding to the current stock price are 22.8X, 19.8X, and 17.4X, respectively. I am optimistic that the company's methionine sales will continue to boom and the volume of specialty products, and maintain a “buy” rating.

Risk warning: risk of global macroeconomic cycle fluctuations; risk of unbalanced product supply and demand; risk of market competition; risk of raw materials and energy supply; risk of product development, technological upgrading and alternative production technology, etc.