Prices are a barometer of a market economy.
The change in price reflects the change in the relationship between supply and demand behind it, and the price rebound often indicates the recovery of the industry's prosperity.
At this stage, methionine in mainland China is in the growth period, and the localization substitution is accelerating, and the price of methionine has bottomed out and has rebounded recently, which is worthy of our in-depth excavation.
So, what is methionine and what is the current price?
Methionine is an indispensable additive in animal feed, it can promote the rapid growth of animals, save about 40% of the feed, and methionine is one of the essential amino acids for the synthesis of animal protein in livestock and poultry, methionine must be added to the feed.
In addition, nutrients such as vitamins and minerals need to be added to the feed.
Since 2016, due to the continuous expansion of overseas Evonik and domestic companies such as Adisseo and NHU, the production capacity of the methionine industry has increased significantly, and prices have continued to be low. By the first half of 2023, the average price of methionine will only be 17 yuan/kg, and the profitability of industry leaders such as Xinhecheng and Adisseo will also fall to a historical low.
The tide rises and falls, when will the price of methionine rise again?
To raise prices, reduce production first, and in the second half of 2023, the leading manufacturers of methionine will successively announce production reductions.
Overseas companies such as Evonik, CJ and Sumitomo have reduced their production capacity by switching to other amino acids on production lines, reducing the capacity utilization rate of their factories, and postponing production projects. The domestic NHU 150,000 tons/year phase II solid methionine project has been postponed, and the second phase of the methionine project planned by Ziguang Tianhua in 2023 has not made any new progress in the near future.
From the demand side, from the end of 2023 to the beginning of 2024, Europe, Southeast Asia, and the United States have all seen the end of the destocking cycle and the stage of active replenishment.
Based on the above factors, the global methionine market has entered the stage of supply and demand rebalancing, the price center is repaired upward, and the profitability of methionine companies will also usher in a recovery cycle.
Similarly, vitamins are still facing the challenge of oversupply, and the trading atmosphere is relatively stable, lacking obvious heat. However, with the reduction of production and shutdown of maintenance by some manufacturers, as well as the digestion of overseas inventories coming to an end, vitamin prices are expected to continue to show a warming trend in the short term.
With such good development prospects, what is the market competition pattern?
The methionine synthesis process is complex and the technical barriers are high, so the methionine industry is highly concentrated.
From the perspective of the global market, the production capacity is mainly concentrated in 8 manufacturers: Evonik, Adisseo, Novus, Sumitomo, Unisplendour, Xijie, NHU, and Hebang Biotechnology.
From the perspective of the domestic market, the main manufacturers are Adisseo, Xinhecheng, Ningxia Unisplendour, Hebang Biotechnology, etc., and it is expected that the production capacity of domestic enterprises will reach about 45% of the world by the end of 2024.
At present, the total production capacity of Adisseo's Nanjing production platform has reached 350,000 tons, and the company's 150,000-ton solid methionine plant in Quanzhou is planned to be put into operation in 2027, continuously consolidating the company's leading position in the methionine industry.
The second phase of the 250,000 tons/year project of NHU methionine is running smoothly, the process route of the 150,000 tons unit is opened at one time, and the 180,000 tons/year liquid methionine project jointly built by NHU and China Petroleum & Chemical Corporation has also been put into construction, which is expected to be completed in the third quarter of 2024.
The methionine industry belongs to the fine chemical industry, which is a typical asset-heavy industry, and Adisseo and Xinhecheng have the characteristics of heavy assets and high accounts receivable.
1. Assets
First of all, looking at the asset level, NHU assets are growing rapidly and are obviously in the expansion stage, while Adisseo's asset scale has changed very little in the past five years, which is better for NHU. However, Adisseo's asset-liability ratio is below 25%, which is significantly lower than that of NHU, and given that NHU's asset-liability ratio is also low, it remains below 40%, which is not a big problem.
2. Accounts receivable
NHU's accounts receivable at the end of 2023 will be 2.483 billion, accounting for 6.34% of total assets, which is a large amount. Receivable + prepaid + contract assets are 2.692 billion, payable + contract liabilities are 2.182 billion, a difference of 500 million, and the company has a weak voice in the upstream and downstream.
Adisseo's accounts receivable at the end of 2023 will be 1.696 billion, accounting for 7.88% of total assets, accounting for a relatively high percentage. Receivable + prepaid + contract assets of 1.803 billion, payable + contract liabilities of 1.413 billion, the difference between the two amounts is not large, in general, the company is not strong in the upstream and downstream.
The turnover days of accounts receivable of NHU are about 2 months, and the turnover days have decreased in recent years, and the turnover days of accounts receivable of Adisseo are basically below 50 days, which is better than that of NHU.
3. Profitability
From the perspective of return on net assets, in 2023, the ROE of NHU and Adisseo will decline again, and the ROE of NHU will decline to 11.24%, comparable to Moutai's 10.57%.
In the past five years, NHU's return on net assets has averaged more than 15%, while Adisseo's is only 7.4%, indicating that NHU has more advantages than Adisseo in terms of cost and expense or pricing.
Looking at the gross profit margin and net profit margin, the gross profit margin of Xinhecheng is about 45% on average for 5 years, the net profit margin is about 30%, and the gross profit margin in 2023 will be 32.98% and the net profit margin will be 18.03%, which is much higher than Gree's gross profit margin of 29.25% and 12.59%.
Adisseo's gross profit margin is about 30% on average for 5 years, and the net profit margin is only less than 9%, and the net profit margin will drop to 0.4% in 2023, with a serious decline in profitability.
Judging from these three profit indicators, NHU has performed relatively well, and all of them are far better than Adisseo, and its profitability is stronger, which also attracts 426 institutional holdings.
It is worth noting that although the revenue of flavors and fragrances accounts for only 21.66%, the gross profit margin is as high as 50.51%.
NHU has shown foresight in the layout of the new track, and has vigorously invested in the field of flavor and fragrance segmentation in the early stage, and has become an important supplier in the global flavor and fragrance industry with its profound technology accumulation, and there is still a lot of room for growth.
New materials also have a lot of room for development, if there can be a breakthrough in these two years, then the four businesses of flavor, vitamins, methionine and new materials will make NHU a big step forward.
Fourth, cash flow
NHU has a 5-year average of net operating cash flow/net profit greater than 1, indicating that its operating cash flow is in good condition.
The net investment cash flow in 2023 is negative, mainly due to the construction of fixed assets expenditure of 4.446 billion, which has been large in recent years due to the expansion stage of NHU, and the free cash flow will be greatly improved as the production capacity is increased and can be converted into cash inflows in the future.
In summary, the global methionine market is gradually moving towards a new stage of supply and demand balance, the price level is showing a rising trend, and the profitability of methionine companies will also usher in a recovery cycle.
NHU adheres to the coordinated development of serialization, takes "chemical +" and "biological +" as the core platforms, and focuses on the business of nutrition, flavors and fragrances, new polymer materials and APIs, with strong profitability, good cost control and strong growth.
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