Introduction to this report:

24H1's high performance growth was in line with expectations. Overseas revenue growth was impressive. It benefited from the expansion of major international customers, new national standards, and production capacity switching for major domestic customers. Revenue grew and profitability improved at the same time.

Key points of investment:

Investment advice: ARA's overseas expansion brought about the company's performance bottoming out and maintaining profit forecasts. The 2024-2026 EPS is expected to be 0.84, 1.01, and 1.16 yuan, maintaining the target price of 20.16 yuan, and maintaining the “gain” rating.

Performance was in line with expectations, and overseas expansion contributed to high revenue and profit growth. The company's 24H1 revenue, return to mother, and deductions of 0.261, 0.068, 0.053 billion yuan were +31%, +95%, and 133% year-on-year, at the center of the performance forecast, in line with expectations. Corresponding to Q2 revenue, return to mother, and deductions of not 0.144, 0.044, 0.034 billion yuan YoY +30%, +112%, and 121%. 24H1's gross profit margin and net profit margin was 42.09%, 25.43% year on year. The increase in revenue and gross margin mainly benefited from the expansion of large overseas customers, the volume of small and medium-sized customers under the new national standard, and the release of production capacity from major domestic customers. The H1 sales, management, and R&D expenses ratio was 5.89%, 5.97%, 8.39% year-on-year -0.48, -3.54, and -0.58pct. The management expense ratio declined significantly due to the reduction in equity incentive expenses.

The 24Q2 company's gross profit margin and net profit margin were 43.39%, 29.66% year-on-year, +0.23, +12.32pct. Increased net margin benefited from increased gross margin, lower expenses, and reduced impairment losses.

Benefiting from the new national standard and the expiration of DSM patents, the company's ARA products have increased rapidly and overseas revenue performance has been impressive. 24H1ARA revenue +59% YoY and DHA revenue +11% YoY. By region, it is estimated that 24H1 domestic and overseas revenue was 0.152, 0.108 billion yuan, +10%, and 80%. Major domestic customers gradually completed powder capacity switching, marginal margin improvement after capacity utilization increased, and the company expanded domestic small and medium-sized customers as production capacity was released; DSM global patents in the international market expired one after another in 2023H1, and the company followed the trend to expand overseas large customers. In addition, Danone and Nestle are expected to increase demand recovery with new national standard registrations from overseas small and medium-sized customers.

HMO raw materials have been approved domestically, and are expected to contribute new growth points in the future, and various synthetic biological raw materials are expected to open up long-term growth space. HMO raw materials 2'-FL and LnnT have been approved domestically as food nutrition enhancers. The company's 2'-FL products have completed production capacity construction and domestic approval. Subsequent overseas expansion and domestic HMO milk powder product registration are all expected to contribute to growth. Based on synthetic biology, the company has developed high-value-added strategic products such as hMOs based on synthetic biology platforms, and has successively carried out research and development of new carotenoids and functional ingredients for personal care. It is expected that it will continue to promote the construction of platform-based nutritional care ingredients and solutions.

Risk warning: New customer volume falls short of expectations, competition intensifies, new product development falls short of expectations