Event: GABIU releases its report for the third quarter of 2023. 2023Q1-3 achieved revenue of 325 million yuan. It increased 18.88% year on year; realized net profit of 60 million yuan, a year-on-year decrease of 22.41%; realized net profit after deduction of 41 million yuan, a year-on-year decrease of 25.26%. In the single quarter of 23Q3, the company achieved operating income of 126 million yuan, an increase of 23.48% over the previous year; realized net profit of 26 million yuan, a decrease of 8.17% over the previous year; and realized net profit after deducting non-return mother of 018 million yuan, a year-on-year decrease of 4.06%.
Revenue growth accelerated, and profitability improved month-on-month. (1) Revenue in the single Q3 of 2023 is +23.5% year-on-year. It is expected to be mainly due to revenue growth brought about by the increase in the amount of ARA and DHA added and the expansion of market capacity after the new national standard was officially implemented in February this year. Comparatively speaking, Q3 revenue was +13.6% month-on-month, which is expected to be mainly affected by the recovery of orders from overseas customers. (2) The company's 2023Q1-3/Q3 gross margin was -3.7/-2.5pct to 41.2%/41.4%, respectively. The decline in gross margin is expected to be mainly affected by customer price adjustments and business structure changes due to the new national standard. On the cost side, the company's single Q3 sales/management/R&D/finance expense ratio was 5.4%/8.4%/8.2%/0.4%, respectively, and -1.2/-2.2/-3.2/+7.4pct, respectively. Among them, the year-on-year increase in the financial expenses rate was mainly affected by low financial expenses last year, and the company's overall cost control capability was still improving. Taken together, the company's net interest rate for 2023Q1-3/Q3 was -9.9/-7.0pct to 18.6%/20.3% year on year, respectively. The decline in Q3 net interest rate narrowed month-on-month, the highest level in a single quarter this year.
The external environment is gradually improving, and HMO is expected to welcome new opportunities. (1) Judging from the main business, with the implementation of the new national standard and the expiration of DSM patents, the company's ARA and algae oil DHA businesses still have room for growth.
At the same time, the source of DHA from algae oil is environmentally friendly and safe, and the replacement of DHA in fish oil is expected to accelerate under the influence of Japan's nuclear polluted water discharge. Judging from the communication between the company and customers, some customers using fish oil DHA have already carried out preparations to replace algae oil DHA. Among them, Nestle proposed switching from fish oil DHA to algae oil DHA based on the ESG concept. The company actively participated in supplier development. If the company and Nestle reach cooperation, the ceiling of the algae oil DHA business may rise dramatically. (2) Judging from the development of new products, on October 7, the National Food Safety Standards and Monitoring and Evaluation Department approved 2 types of HMO—2'-fucoidolactose (2'-FL) and lactose-N-tetrasaccharide as new types of food additives. This is the first time that HMO has been approved for infant formula and formula for children in China. The company actively lays out the HMOS market. Product research and development, regulatory entry, customer development, and production capacity construction are being carried out simultaneously. The product has successfully passed the biosafety review by the Ministry of Agriculture since it was submitted in Q1, and is currently undergoing a food safety review by the Health and Health Commission, and there are no cases where it has been denied. If the company's HMO products successfully pass approval, performance elasticity is expected to be further unleashed.
Investment advice: The company's main business benefits from the definitive growth of the industry and is actively expanding new business growth poles. In the short term, we need to pay attention to the progress of major customer production capacity switching, overseas customer development progress, and HMO approval progress. The medium- to long-term upward trend will not change. We adjusted our profit forecast according to the company's performance report. We expect the company to achieve operating income of 4.87/612/743 million yuan in 2023-2025, respectively +12.5%/+25.6%/+21.3%, respectively; achieve net profit of 1.04/1.30/158 million yuan, +61.9%/+24.9%/+21.6%, corresponding to PE of 31X/25X/21X, respectively, maintaining the “buy” rating.
Risk warning: The registration progress of the new national standard falls short of expectations, food safety risks, risk of raw materials rising, overseas customer expansion falling short of expectations, etc.