Main points of investment
Event: Huisheng Biological 2022H1 realized revenue of 397 million yuan, year-on-year-25.89%, net profit of 7 million yuan, year-on-year-93.57%, deduction of non-parent net profit of 1 million yuan, year-on-year-98.55% 2022Q2 achieved revenue of 191 million yuan, year-on-year-13.90%, month-on-month-6.96%, return-to-mother net profit of 5 million yuan, year-on-year-88.15%, month-on-month + 121.79%, deducted non-return net profit of 260000 yuan,-99.22%, month-on-month-76.79%.
Aquaculture mood depressed drag drug sales: as the company's main business for veterinary drugs, the first half of the year by downstream farming mood is depressed, farmers' enthusiasm for drug use is greatly affected, resulting in a significant decline in revenue. In addition, because the company is affected by (1) the high price of APIs until May this year, (2) the increase in depreciation expenses caused by the revenue range less than the rate of capacity expansion, and (3) the discount promotion activities to digest inventory and other factors, profitability is significantly weakened.
The rate of R & D expenditure has increased, and the results have been shown: the rate of 22H1 R & D expenditure is 4.45%, an increase of 1.63PCT compared with the same period last year. In April this year, the fourth-generation animal-specific antibacterial drug Tediloxin injection developed by the company was successfully put on the market; in addition, the fermentation process of Tywanin was continuously optimized, and the fermentation potency and batch average yield increased by 4.5% and 6.7% respectively compared with 2021, to achieve efficiency and cost reduction.
The problem of capacity constraints has been alleviated, and leading products may produce economies of scale: 22H1 traditional Chinese medicine extraction and preparation production line construction project, Hubei Huisheng preparation production line automation comprehensive reconstruction and expansion project, powder / premix production line expansion project has been successfully put into production, with an annual design capacity of 2100 tons; in addition, the annual production capacity of 1000 tons of tylosin project was put into commissioning. The expansion project of the production line with an annual production capacity of 600 tons of Tywann is expected to be put into production in the second half of the year. With the continuous improvement of Taiwan's popularity, its market position and penetration will be further improved, which may form a scale effect in the long run.
The breeding boom has improved, and the animal protection market has started: pig prices began to rise in the second quarter and kept fluctuating above the cost line. Since July, most breeding enterprises have turned losses into profits. With the opening of school, the advent of double holidays and other factors catalyzing the peak consumption season, pig prices are still supported in the second half of the year, so as to ensure the sustainability of breeding prosperity and drive the demand of the animal protection industry from weak to strong. from this we judge that the company will usher in the inflection point of income and profit in the second half of the year.
Investment advice: the company's profitability is expected to improve as demand picks up. We estimate that the revenue of the company from 2022 to 2024 will be 10.08 yuan 1.44 billion yuan respectively, and the net profit of returning mother will be 0.87 million yuan 189 million yuan respectively. Based on the closing price on September 5, 2022, the corresponding PE is 51.6, 23.7, 15.4 times, covering for the first time, and given a "prudent overweight" rating.
Risk tips: pig stock is not as expected, animal epidemic, upstream raw material price fluctuation risk, policy change.