HUAKANG(SH:605077) Southwest Securities·2024-04-30 11:00Investment Rating - The report maintains a "Buy" rating for Huakang Stock (605077) with a target price of 25.76 yuan for the next 6 months [1] Core Views - Huakang Stock achieved revenue of 2.78 billion yuan in 2023, a year-on-year increase of 26.5%, with net profit attributable to the parent company of 370 million yuan, up 16.3% year-on-year [1] - In Q1 2024, the company's revenue was 640 million yuan, down 2.4% year-on-year, and net profit attributable to the parent company was 80 million yuan, down 11.2% year-on-year, which was below market expectations [1] - Crystal sugar alcohol sales grew steadily, with revenue of 1.91 billion yuan in 2023, up 14.7% year-on-year, and sales volume of 149,000 tons, up 27.9% year-on-year [1] - Liquid sugar alcohol and other products achieved revenue of 680 million yuan in 2023, up 33.0% year-on-year, with sales volume of 210,000 tons, up 33.9% year-on-year [1] Product Performance - Crystal sugar alcohol gross margin was 28.9% in 2023, up 2.2 percentage points year-on-year, driven by product mix optimization [1] - Liquid sugar alcohol gross margin was 8.8% in 2023, up 1.1 percentage points year-on-year [1] - Overall gross margin in 2023 was 23.7%, up 1.4 percentage points year-on-year, while net margin was 13.4%, down 1.1 percentage points year-on-year [1] Capacity Expansion - The "30,000-ton D-xylose green intelligent upgrading project" has entered trial production, which will improve automation and reduce energy consumption [1] - The first phase of the 1 million-ton corn deep processing project in Zhoushan is expected to be completed in August 2024, focusing on liquid syrup and some crystal sugar alcohol products [1] - The second phase of the Zhoushan project will take 3 years, with new product lines such as dietary fiber and modified starch to be developed [1] Financial Projections - Net profit attributable to the parent company is expected to be 380 million yuan, 460 million yuan, and 550 million yuan for 2024-2026, respectively [1] - EPS is projected to be 1.61 yuan, 1.97 yuan, and 2.32 yuan for 2024-2026, respectively [1] - The company is valued at 16x 2024 PE, corresponding to a target price of 25.76 yuan [1] Industry Comparison - Comparable companies include Bailong Chuangyuan, Layn Natural Ingredients, and Chenguang Biotech [12] - Huakang Stock is valued at a lower PE multiple compared to peers, with 2024 PE of 13x versus the industry average of 20x [12] Key Assumptions - Crystal sugar alcohol revenue is expected to grow 5%, 12%, and 10% in 2024-2026, with gross margins of 29%, 30%, and 31%, respectively [7] - Liquid sugar alcohol and other products revenue is projected to grow 20%, 25%, and 20% in 2024-2026, with gross margins of 9%, 10%, and 11%, respectively [7]