Xinhecheng: Leading Vitamin Product Production Capacity No. 1

1. The price increase of leading vitamin products promoted substantial growth of the company’s performance

In the first three quarters of 2020, the company achieved revenue of 7.473 billion yuan, a year-on-year increase of 28.95%, and realized a net profit of 2.937 billion yuan attributable to the parent, a year-on-year increase of 72.52%. In a single quarter, the company achieved revenue of 2.17 billion yuan in the third quarter, a year-on-year increase of 13.84%, and realized a net profit of 728 million yuan attributable to the parent, a year-on-year increase of 32.47%. According to WIND information, the average prices of VA, VE, VD3, and biotin in the first three quarters of 2020 have changed by 13%, 45%, -31% and 288% respectively.

2. The business of flavors, fragrances and new materials develops rapidly, and new projects open up room for growth

Despite the impact of the epidemic, the company's flavor and fragrance business has maintained rapid growth, and the profitability of the new material business has been greatly improved. After years of cultivation, it has gradually entered the harvest period. The company's new projects are progressing smoothly. Recently, the first phase of the 250,000 tons/year methionine project and the first phase of the Heilongjiang biological fermentation project have officially put into operation.

3. The employee stock ownership plan will be gradually implemented, and the binding of core employee interests will demonstrate confidence in development

On October 27, the company announced the third phase of its employee stock ownership plan. The employee stock ownership plan will cover the company's 12 directors, supervisors, and senior managers and no more than 673 employees. The capital for the establishment of the shareholding plan does not exceed 306 million yuan. The employee shareholding plan covers a wide range, demonstrating the confidence of the company's senior management and core employees in the company's development. After the completion of the shareholding plan, the company's employee cohesion will be further enhanced and will continue to create new competitive advantages for the company.

4. Strengthen the status of nutritional products inward, and actively create new growth poles outward

From the perspective of business structure, the company’s basic board is vitamin products in nutritional products, and flavors and fragrances are intermediates or synergistic products, that is, vitamins + fragrances and flavors are the basic board; the technical barrier of the basic board is the mastery of citral and trimethyl hydrogen. Synthesis technology of quinone and isophytoalcohol.

In the basic market, the company's current energy is mainly to expand methionine and flavors and fragrances, and has prepared 250,000 tons of methionine projects. However, due to the low price of methionine products, the net profit contribution is relatively ordinary. The core growth of the basic disk depends on the production of flavors and fragrances. At the same time, the company took precautions and exerted its strong R&D capabilities to enter the special engineering materials, bio-fermentation and sucralose markets successively. The total capital expenditure of the three new directions (excluding the second phase of the Heilongjiang project) was 9.7 billion yuan. The company’s average ROA of 10% in the past five years can contribute 1 billion yuan in net profit to the company and contribute new growth poles to the company’s growth.

5. The optimistic agency expects a target price of 43.2 yuan, with a 40% upside

Huachuang Securities predicts that the company’s net profit attributable to its parent in 2020-2022 will be 3.9 billion yuan, 4.6 billion yuan, and 5.1 billion yuan, and the corresponding earnings per share will be 1.81, 2.16, and 2.37 yuan per share; considering the company’s relative common cycle stocks Significant valuation advantage, according to 2021 performance, given 20 times PE, given a target price of 43.2 yuan per share, covering the "close watch" rating for the first time.

Potential risks: The production capacity is less than expected, and the price of VA/VE/methionine weakens.