Bailong Chuangyuan(SH:605016) HTSC·2025-12-29 05:36Investment Rating - The report initiates coverage on Bailong Chuangyuan with a "Buy" rating and sets a target price of RMB 28.00, corresponding to a 25x PE for 2026 [1][5][7]. Core Insights - Bailong Chuangyuan is positioned as a leader in the functional sugar sector, benefiting from a product mix that aligns with health trends, strong technical barriers providing pricing power, and a global production layout that supports sustained leadership in the functional sugar market [1][14][35]. - The company is expected to experience robust growth driven by the release of dietary fiber and prebiotic capacities in the first half of 2026, alongside the penetration potential of allulose sugar, which is anticipated to become a new growth driver [1][2][35]. Summary by Sections Beta Dimension - Bailong Chuangyuan focuses on the functional sugar sector, with three main product categories—prebiotics, dietary fibers, and allulose sugar—benefiting from the global "sugar reduction" and health upgrade trends [2][15]. - The global market for prebiotics is projected to grow at a CAGR of 8.6% from 2024 to 2030, driven by increasing consumer awareness and supportive policies in dairy and infant formula sectors [2][15]. - Dietary fibers are expected to see a CAGR of 10.0% from 2024 to 2030, with resistant dextrin leading the growth due to its enhanced functionality [2][15]. - Allulose sugar is anticipated to have a CAGR of 16.9% from 2024 to 2030, as it expands from beverages to baked goods, supported by regulatory approvals in key markets [2][15]. Alpha Dimension - The company leads in market share within the functional sugar industry, with significant global market positions in dietary fibers, prebiotics, and allulose sugar [3][16]. - Technical advantages include high purity and low-cost production methods for resistant dextrin and allulose sugar, which enhance competitive positioning [3][16]. - Customer stickiness is strong, with 67% of revenue coming from overseas markets, where the competitive environment is less aggressive than in domestic markets [3][16]. - The company’s flexible production management allows for efficient capacity allocation, focusing on high-value products, and plans for expansion in Thailand are expected to further enhance global competitiveness [3][16]. Market Perspective - The report counters market concerns regarding domestic competition leading to price wars, emphasizing the company's high overseas revenue proportion and the customized nature of its products, which create high switching costs for customers [4][16]. - The business model is designed to mitigate risks associated with capacity expansions by competitors, as the company's products are closely tied to long-term health trends rather than short-term price competition [4][16]. Profit Forecast and Valuation - The forecast for net profit attributable to the parent company is RMB 3.6 billion, RMB 4.7 billion, and RMB 6.2 billion for the years 2025 to 2027, respectively, with corresponding EPS of RMB 0.86, RMB 1.12, and RMB 1.48 [5][10].