Investment Rating - The report initiates coverage with a "Buy" rating for the company [4][6]. Core Viewpoints - The company is a leading manufacturer of biodegradable food service products in China, showing steady growth in performance driven by increasing demand and capacity expansion [1][3]. - The biodegradable materials market is expected to grow significantly due to the implementation of plastic restriction policies and rising consumer demand in the food service industry [2][44]. - The company has established a comprehensive production capability and a strong customer base, positioning itself well to capitalize on market opportunities [3][39]. Company Overview - The company focuses on the research, production, and sales of biodegradable products, with multiple production bases across China [1][12]. - It has developed a robust technical system for PLA material applications, enhancing its competitive edge in the market [3][38]. - The company has formed stable partnerships with numerous well-known brands, including Starbucks and McDonald's, which strengthens its market presence [3][39]. Financial Performance - The company’s revenue is projected to grow at a CAGR of 39.2% from 2020 to 2024, with net profit expected to grow at a CAGR of 70.6% during the same period [1][22]. - Revenue is expected to reach 1,900.67 million yuan in 2025, with a net profit of 257.77 million yuan [5]. - The company’s gross margin has remained stable, with net profit margin increasing from 11.3% in 2021 to 14.2% in 2024 [35]. Industry Insights - The food service industry in China is projected to reach a retail sales total of 5.57 trillion yuan in 2024, with a growth rate of 5.3% [2][48]. - The demand for biodegradable materials in food service products is expected to rise as the penetration rate remains low and environmental policies become stricter [2][44]. - The market for new-style tea and coffee is growing rapidly, with a CAGR of 11.5% from 2019 to 2024, indicating strong potential for the company’s products [2][49]. Production Capacity and Global Strategy - The company has a production capacity of 9 billion units of paper and plastic food service products and is expanding its global footprint with a new factory in Thailand [3][43]. - The establishment of the Thailand factory is expected to optimize the company's global supply chain and mitigate tariff impacts [3][43]. Profitability Forecast and Valuation - The company is expected to achieve net profits of 2.58 billion yuan, 3.12 billion yuan, and 3.74 billion yuan from 2025 to 2027, with corresponding P/E ratios of 34, 28, and 24 [4][58]. - The target price range for the company is set between 63.2 and 67.5 yuan based on comparable company valuation methods [4].

Group 1: Company Growth and Revenue - The company has experienced rapid revenue growth since 2021, with key contributions from several major clients [1] - In 2024, the top five clients accounted for 41.27% of the total annual sales, with no single client exceeding 50% of sales [2] Group 2: Future Development and Market Strategy - Future growth is expected to stem from core technology in biodegradable products, a growing client base in coffee, tea, and supermarkets, gradual capacity release, and new product development [1] - The company is actively expanding its customer base and regional markets to mitigate reliance on a few clients [2] Group 3: International Sales and Risk Management - Sales to the U.S. account for approximately 10% of total revenue, with stable operations and order fulfillment [2] - The company is monitoring policy changes and external uncertainties while enhancing customer relationships and brand building to manage risks associated with U.S. tariffs [2] Group 4: Production Capacity and Competition - The Thailand factory began normal production in April 2025, primarily serving U.S. market orders and is currently ramping up capacity [2] - Key competitors in the biodegradable sector include Jialian Technology and Fuling Co., with the company holding competitive advantages in processing capabilities, product variety, and strong customer resources [2] Group 5: M&A Plans - The company currently has no plans for mergers or acquisitions [2]

Financial Performance - In Q1 2025, the government subsidies accounted for CNY 41.9 million, contributing to the company's financial performance [3] - For 2024, the company reported an 11.86% increase in revenue and a 2.82% increase in net profit compared to the previous year [4] - The company's non-recurring net profit growth was only 1.19% in 2024, attributed to various factors including changes in sales structure and increased costs [4] Production and Operations - The Thai factory completed its first product shipment in April 2025 and is currently in a rapid capacity ramp-up phase [3][10] - The company has invested in a project to produce 30,000 tons of compostable PLA products annually, which has already commenced production [7] - The company’s main products are biodegradable food service items, which accounted for approximately 55% of sales in 2024 [3][5] Market and Competitive Landscape - The company’s export revenue accounted for 38.09% of total revenue in 2024, with sales to the U.S. representing about 10% of overall sales [9][13] - The competitive landscape is fragmented, with major competitors including Jia Lian Technology and Fu Ling Co., but the company maintains a competitive edge through its comprehensive production capabilities and established customer relationships [8][17] - The company is focusing on expanding its customer base, particularly in the coffee and tea sectors, to drive future revenue growth [5][13] Future Growth Drivers - Future revenue growth is expected to stem from advancements in biodegradable technology, expanding customer relationships, and new product development [5][13] - The company plans to enhance its global presence and invest in research and development to innovate in green technologies [8][16] - The ongoing trend of banning single-use plastics is anticipated to benefit the sales of the company’s biodegradable products [5][7] Regulatory and Economic Factors - The company is monitoring the impact of U.S.-China tariff policies, which have a limited and manageable effect on its overall business [9][13] - The company is actively adapting to regulatory changes, particularly in the EU regarding packaging waste, which aligns with its product offerings [4][9]