Event: The company released its 2023 annual report and 2024 quarterly report. In '23, the company achieved revenue of 868 million yuan, an increase of 20.28% over the previous year, and achieved net profit of 193 million yuan to mother, an increase of 28.02% over the previous year. 24Q1 achieved revenue of 255 million yuan, a year-on-year increase of 29.63%, and achieved net profit of 54 million yuan to mother, an increase of 20.47% over the previous year.
Demand for core products is good, and production capacity is driving steady and high growth. The new production capacity is expected to be put into operation in May '24.
In '23, the company achieved revenue of 868 million yuan, an increase of 20.28% over the previous year. Among them, 23Q4 achieved revenue of 214 million yuan, an increase of 25.03% over the previous year. The company grew steadily throughout the year, mainly due to: 1) the increase in sales volume of the company's products due to increased demand from domestic and foreign customers; 2) the 23Q3 “functional sugar drying project with an annual output of 20,000 tons” was put into operation, and the release of production capacity led to an increase in revenue.
By product in '23, the company's dietary fiber series achieved revenue of 444 million yuan, a year-on-year increase of 31.08%; the prebiotic series achieved revenue of 257 million yuan, an increase of 4.49%; the healthy sweetener series achieved revenue of 137 million yuan, an increase of 44.91%; and other starch sugars (alcohols) achieved revenue of 16 million yuan, a year-on-year decrease of 5.52%. The high increase in the company's dietary fiber products is mainly due to the increase in the penetration rate of terminal dietary products, which has led to a rapid increase in sales of the company's resistant dextrin and polydextrose, while the rapid growth in healthy sweeteners is mainly due to the increase in demand for this product in overseas markets. At the same time, the commissioning of the “functional sugar drying project with an annual output of 20,000 tons” provided production capacity support for the production of dietary fiber and allodonose.
Looking at 24Q1 by product: 24Q1's dietary fiber series achieved revenue of 135 million yuan, a year-on-year increase of 32.88%; the prebiotic series achieved revenue of 73 million yuan, a year-on-year increase of 55.40%; the healthy sweetener series achieved revenue of 0.24 million yuan, a year-on-year decrease of 34.86%; and other starch sugars (alcohols) achieved revenue of 0.2 billion yuan, a year-on-year decrease of 51.28%. The company's fund-raising project “Project with an Annual Output of 30,000 Tons of Soluble Dietary Fiber” and the “Project with an Annual Output of 15,000 Tons of Crystalline Sugar” invested and built with its own capital are progressing in an orderly manner. It is expected to be successfully put into operation in May 2024. After commissioning, it is expected that the production capacity of core products will be greatly increased and sales will continue to grow.
Gross margin grew steadily in '23, expenses were basically stable, and profitability continued to improve. The company's gross margin/net margin in '23 was 32.73%/22.23%, respectively, +1.07/+1.34pct year-on-year, respectively. Judging from the cost ratio, the company's sales/management/finance/R&D expenses in '23 were 3.04%/2.46%/-0.65%/3.75%, respectively, -0.35/-0.39/+1.28/+0.01pct, respectively. The relatively large changes in financial expenses were mainly due to increased interest expenses and differences in export/dollar exchange in 23, while the rest of the expenses were relatively stable. The 24Q1 company achieved gross margin/net margin of 33.75%/21.24%, respectively, -3.56/1.62 pct year on year. Judging from the raw material purchase price, the 24Q1 sucrose purchase unit price increased 15% year on year. We judge that fluctuations in the price of sucrose had a certain impact on gross margin.
Overseas production capacity continues to increase in the medium to long term, and profitability is expected to increase significantly. In October 2023, the company plans to invest in the construction of a functional sugar production base project in Thailand. The Thai project is progressing rapidly. We expect the Thai project to enter the construction period soon. The company's construction of a production base in Thailand has multiple meanings: 1) implementing an internationalization strategy to enhance international competitiveness; 2) reducing production costs and increasing profit levels; 3) reducing tariff levels to avoid trade risks. We believe that the company's construction of a factory in Thailand is significant and an important step for the company to continue to expand its overseas business. After the factory is completed and put into operation, the production capacity of core products will further increase, and the company's profitability is expected to increase significantly.
Profit forecast: We believe that the company has deep R&D and innovation capabilities, and can continue to develop small and beautiful varieties. The “Project with an annual output of 15,000 tons of crystalline sugar” will be put into operation in May '24, and the Thai project will also enter the construction period. The company's production capacity will continue to increase, and profitability is expected to continue to increase. We are optimistic about the company's medium- to long-term development. We expect the company to achieve net profit of 3.02/4.16/557 million yuan in 2023-25, +56%/+38%/+34% year-on-year respectively. The current stock price corresponding to 2023-2025 PE is 22X/16X/12X, respectively, maintaining a “highly recommended” rating.
Risk warning: Production capacity absorption progress falls short of expectations; rapid iteration of technology, increased market competition; large fluctuations in raw material prices; investment project construction progress falls short of expectations, etc.