Howard · Marx said that everything is a cycle, from individuals and industries to economic society and nature.
In the past August, because of the rain, the price of vegetables rose a lot, which is the embodiment of the seasonal cycle; In addition, even in the off-season, pork prices continue to rise, reflecting the cyclical changes in the livestock industry.
However, in terms of cyclical fluctuations, consumer goods are still relatively stable, and the fastest price increases so far in 2024 are upstream resources and chemicals.
And price increases often mean an upward cycle.
The price of vitamins has risen significantly, with the average price of vitamin D3, vitamin A and vitamin B1 doubling since the beginning of this year.
As a result, industry leaders such as Garden Biology, Xinhecheng, Zhejiang Medicine, Adisseo, and Tianxin Pharmaceutical have been excavated.
And after the latest release of the 2024 semi-annual report, we found that NHU had the best performance.
The year-on-year growth rate of the company's revenue and net profit was 32.7% and 48.62% respectively, maintaining rapid growth, and the quarter-on-quarter growth rate in the second quarter was also improving.
You may ask, Adisseo's net profit in the first half of 2024 will grow by 1719% year-on-year, isn't it good to have explosive growth. Naturally not, but after the high performance growth has passed, it will inevitably return.
And then Adisseo is actually equivalent to Dragon Three, and Dragon One is still new and successful.
Among them, vitamin A is not only one of the most widely used sub-categories, but also the largest increase this year in addition to vitamin D3, so it has formed a blessing for the company's performance growth.
NHU is the first domestic vitamin A company, and the world's first is BASF, and the general rise in vitamin prices this year is caused by its explosion.
So, what are the advantages of NHU?
1. Scale advantage
NHU has a comprehensive layout of the vitamin industry chain, with products covering VA, VE, VC, VB6, 5 and 12, which are the first in the industry in VA and VE.
Therefore, it can be seen that the company's revenue scale not only ranks first in the API industry, but also is the largest company in the vitamin industry.
Although there are fluctuations in historical growth, from 2019 to 2023, the performance will basically show a growth trend, with a compound growth rate of 11.73% in revenue.
The scale of net profit in 2023 is slightly smaller than that in 2018, mainly because the net profit has declined for two years, which is related to the overall cycle decline of the vitamin industry, and this year it has ushered in a performance reversal trend.
2. Profit advantage
First of all, NHU's profitability advantage does not lie in how stable the profitability is, because after all, it will be affected by cyclicality.
Its profit advantage is that its profitability is better than that of other companies, with a ROE of 11.24% at the worst time in recent years, and the profitability of shareholders is higher than that of Hengrui and Yunnan Baiyao, and the gross profit margin and net profit margin are also higher than those of Zhejiang Medicine, Adisseo and other companies in the same industry.
Secondly, profitability is ultimately reflected in the ability to make money, NHU not only has high quality of earnings, but also can return the money earned to shareholders.
Since the company was listed in 1999, the cumulative dividend is 13.3 billion, ranking in the top 3% of listed companies. In the past five years, the average dividend payout ratio (dividend rate) is 45%, which is actually higher than that of resource companies such as Zijin Mining and banks.
This can be seen from the cash flow statement, operating cash is the company's main source of cash, and financing cash flow has been negative in recent years.
3. Technical advantages
If scale and profitability are phenomena, then technology is fundamental. NHU's business still has a lot of technical content.
On the one hand, there are upstream raw material production barriers, which is the key to the formation of the vitamin oligopoly pattern.
Like in the field of VA, citral is a key intermediate in synthesis, but its synthesis process is extremely complex, the equipment requirements are extremely high, and the treatment of three wastes is difficult, so in the VA production company, NHU is the only company that produces its own raw materials.
Then there is VE, NHU has also mastered the key intermediate, linalool, and 90% of the domestic production capacity is concentrated in NHU and Shanghai Petrochemical.
On the other hand, in the field of other nutrients methionine, NHU has broken through the barriers of foreign technology after 10 years of technical research, and the market share of the top four manufacturers in the industry is 73.2% (the company ranks third), which is no worse than the vitamin pattern.
So in the future, where is the growth of NHU?
1. The industry cycle is on the upswing
Now, in addition to the logic of price increases, the clearing of industry capacity and the recovery of demand are also expected to promote the upward trend of the industry cycle.
Taking vitamin A as an example, although its historical price fluctuations are large, the downward trend has been obvious in recent years, reaching the trough of the cycle, thereby promoting the clearing of industry production capacity.
Including DSM's successive shutdowns and closures of relevant factories, and said that it will divest its vitamin business in 2025, as well as the explosion of BASF's factories and the suspension of production and maintenance by domestic manufacturers, all of which have really affected the supply of the industry.
In addition, as the industry destocking comes to an end, the demand for vitamin exports in 2024 has returned to normal and improved significantly, and because vitamins and methionine are closely related to pig feed, with the rise in pork prices, the downstream demand of manufacturers will increase and the profit margin will be greater.
2. Self-business development
NHU actually has 4 major businesses so far, vitamins are one of them, and methionine, both of which belong to nutritional products, and then flavors and fragrances, new materials and APIs.
The company's vitamin business is actually relatively mature, and now the main expansion is methionine, new materials and other products, and the company's 5.9 billion projects under construction in 2023 will be solidified, which has a lot to do with them.
As of the first half of 2024, the company's four major businesses have maintained rapid growth, and the slowest growth rate of the flavor and fragrance business is also 17.94%.
Therefore, in addition to the consideration of the industry cycle, the scale of NHU business is bound to increase in the future.
The scale of the global vitamin industry is about more than 30 billion yuan, in addition to methionine, flavors and fragrances industry scale of 30 billion yuan and 190 billion yuan respectively, which does not consider the new material business, the company's future business expansion space is huge.
Finally, a summary.
For Xinhecheng, which is standing at the forefront of the industry, some people may think that it is temporary, after all, the short-term price increase of the product is larger, but from the logic of the industry cycle, it is obvious that there is still support.
And although the company will be affected by the cycle, it also shows strong development and earning ability, so the long-term investment value is also there, but it must be tracked continuously.
Let's briefly talk about the valuation, the current total market value is 59.5 billion, and the consensus of institutions is expected to be 4.7 billion yuan in 2024, corresponding to PE 12.66 times, and the average growth rate of expected net profit in 2025 and 2026 is 14.5%, so the valuation is not high.
However, cyclical stocks are also more suitable for PB valuation, the current company's PB is 2.32 times, which is in the 18th percentile of the past ten years, and 2.1 times or more reasonable if it is undervalued below 10%.
The above is only for the analysis of listed companies and is not intended as specific investment advice.
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Source: Flying Whale Investment Research