Introduction to this report:

Company H1's gross margin structure declined due to delays in registration for some small, medium, and overseas customers. H2 is expected to improve marginally. After DSM's patent expires, it will focus on the progress of overseas customer expansion.

Key points of investment:

Investment advice: Considering some customer registration delays, we adjusted our profit forecast and estimated EPS of 0.63 (-0.27) /0.89 (-0.37) /1.14 (-0.48) yuan for 2023-2025. Considering the company's growth, we gave PE35x in 2024, lowered the target price to 31.15 (-8.56) yuan, and maintained the “increase in holdings” rating.

Performance fell slightly short of expectations, with overseas customers driving a month-on-month improvement in Q2 gross margin. 2023H1 Company's revenue, attribution, and non-net profit of 1.99, 0.35, and 23 million yuan were +16%, -30%, and -37%; Q2 revenue, return, and non-net profit of 111, 0.21, and 115 million yuan were +16%, -23%, and -29%. The company's 23H1 gross profit margin was 41.04% year-on-year - 4.42pct, mainly due to price cuts for major domestic customers and a decline in the share of overseas customers. Among them, the gross profit margin of 23Q2 was 43.16% +5.2 pct. It is expected that major overseas customers will pick up more goods in Q2. 23H1's net interest rate declined by 16.49% year on year, mainly due to a decrease in gross margin, impairment, etc., of which the Q2 net interest rate improved by 17.34% (Q1 was 15.41%).

Domestic countries have benefited from the increase in new national standards, and overseas have been affected by delays in registration and approval. The company's 23H1 domestic revenue was +48% year-on-year, mainly due to core major customers completing the transition to new national standards and the release of the company's production capacity, which led to rapid growth in ARA and DHA revenue. However, gross margin structurally declined due to poor progress in registration of new national standards for small and medium-sized customers and some overseas customers, and it is expected that H2 will improve marginally.

ARA's overseas market is expected to open up, and we will follow the progress of customer development. DSM's main patent H1 has expired one after another. Currently, the company has cooperated with major overseas customers Danone and Nestle, which is expected to further expand international customers. At the same time, higher overseas ARA prices will drive profit growth.

Risk warning: loss of customers, new customer expansion falling short of expectations, new product development falling short of expectations.