Two global sugar substitute leaders plummeted, a big opportunity to buy the bottom?

Original title: Two global sugar substitute leaders plummeted, a big opportunity to buy dips?

Image source @Visual China

Text｜Market Value Observation, Author｜Blue Danube, Editor｜Xiaoshimei

Text｜Market Value Observation, Author｜Blue Danube, Editor｜Xiaoshimei

Recently, the stock prices of the two leading sugar substitutes in the A-share market have suffered heavy losses one after another.

At a time when the wave of zero-sugar consumption is clearly visible, is the plummeting share price of the two leading sugar substitutes an opportunity or a risk? We might as well start from the consumption substitution, cyclical attributes, and core competitiveness of leading companies in the sugar substitute industry

Zero sugar consumption wave

The human body is born with the pursuit of sweets, because sweets not only make people happy, but also efficiently replenish energy

However, excessive sugar intake will bring burdens such as dental caries, obesity, and diabetes that are harmful to the human body

Consumers' boycott of high-sugar products has reached a consensus, and foreign developed countries have even legislated to levy sugar taxes to limit the consumption of high-sugar products

In this context, "sugar reduction", "zero sugar" and "sugar replacement" have also become a new wave of consumption in China

Taking the beverage market with the largest proportion of sugar consumption as an example, data from China Industry Information Network shows that from 2014 to 2019, the market size of China's sugar-free beverages increased from 1.

However, despite the very rapid growth rate, zero-sugar beverages do not account for a large proportion of overall beverages

There are huge market opportunities brewing behind this, and the domestic consumption upstart vitality forest is the trend of this trend

And "0 sugar, 0 fat, 0 calories" is the biggest label of Yuanqi Forest on the bottle, which not only satisfies consumers' pursuit of "sweetness", but also dispels consumers' concerns about high calories

The so-called "zero sugar" actually replaces traditional raw materials such as sucrose with "sweeteners".

In this round of "zero-sugar consumption wave" that has been vacated, not only zero-sugar end-product companies such as Yuanqi Forest, but also upstream sweetener suppliers have benefited

China is the largest producer of sweeteners, and the world's largest producers of sweeteners are domestic

The development of sweeteners can be traced back to 1879, when the first-generation sweetener "saccharin" was born in the laboratory of an American university.

In the 20th century, human beings successively discovered "second-generation" artificial sweeteners such as "cyclamate", "aspartame", "acesulfame potassium", "sucralose" and "neotame".

However, in addition to the above artificial sweeteners, the sweetener family also includes "natural sweeteners" and "sugar alcohol sweeteners", the former representing "mogroside" and "steviol glycoside", the latter representing " Xylitol", "Sorbitol", "Erythritol"
.

According to the output value, among dozens of sweeteners, "sucralose", "aspartame", "acesulfame potassium" and "erythritol" have the highest output value
.

However, the development momentum of the four major categories is not consistent.
Among them, "erythritol" has the highest production growth rate.
The compound annual growth rate of this category's output from 2015 to 2019 reached 29.
9%.
High temperature resistance and high acid resistance and potential safety hazards have declined significantly, with a CAGR of -14.
1% in the same period
.
The CAGRs of the remaining "Sucralose" and "Acesulfame K" were 18.
9% and 9.
8% respectively over the same period
.

According to this trend, "Sucralose" will continue to be the leader of sweetener output value in the future, "Erythritol" will replace "Aspartame" as the second place, and "Acesulfame K" will take the third place
.

Currently, Jinhe Industry is the world's largest producer of "Sucralose" and "Acesulfame K".
In 2021, the company's "Sucralose" production capacity will account for 33.
2%, which is twice that of the second place, British Taylor's.
Above; in the same period, the production capacity of "Acesulfame" accounted for as high as 60%, which was four times that of the second place Yabang Chemical
.

The world's largest "erythritol" supplier is Sanyuan Bio, with a global production share of 33% in 2019, 10 percentage points ahead of the second-placed Cargill
.
It is worth mentioning that the third-ranked Bowlingbao has a market share of 18%, and its strength is not bad
.

Clearly ahead of their peers in market share, these two companies have become oligarchs in the sweetener industry, with higher bargaining power over competitors
.

pro-cyclical opportunities

The sweetener industry has its own particularities.
On the one hand, its product differentiation is weak, which is somewhat similar to bulk commodities; on the other hand, its production process involves various production processes such as chemistry and microorganisms, and there are certain production barriers
.

Cyclicality is the biggest feature of the sweetener industry, and its product prices fluctuate closely with production capacity changes
.

The data shows that from 2008 to 2020, the production capacity of acesulfame has experienced expansion and contraction, and its price has also experienced two stages of decline and increase
.

The price trend of "sucralose" also shows the same trend.
The data shows that from 2011 to 2020, the production capacity of "sucralose" has been expanded twice, and the price has dropped from 550,000 yuan/ton in 2011.
close to 200,000 yuan / ton
.

However, corresponding to specific companies, the unit price of sweeteners is not the only factor that determines performance, and the expansion of production capacity is also extremely important
.
Taking Jinhe Industry as an example, from 2017 to 2021, although the gross profit margin of its food additive business has been declining, due to the steady increase in sales, the company's food additive business revenue has steadily increased from 1.
63 billion yuan to 3.
03 billion yuan
.

This shows that sweeteners are not simply equivalent to cyclical products such as live pigs.
The inherent demand growth potential of this industry is considerable, and leading companies can completely take the route of exchanging market share for price
.

From this logic, paying attention to changes in the "supply and demand gap" is extremely important for how to invest in the sweetener industry, and relevant data show that it is currently in a period of capacity expansion
.

Among them, in terms of acesulfame, according to statistics, by the end of 2021, the total global production capacity of acesulfame is about 20,000 tons, and the current operating rate is about 95%, indicating that the relationship between supply and demand is still tight; The production capacity is 20,600 tons, and the operating rate is around 70%, but it is showing an upward trend, which also means that the relationship between supply and demand is tight
.

In terms of erythritol, according to statistics, the existing production capacity by the end of 2021 is 175,000 tons, and the new production capacity in the next 3-5 years will be 300,000 tons.
Calculated at an operating rate of 80%, the output in 2025 will be about 38 million tons.
10,000 tons, which is highly matched with the forecast demand of 350,000 tons
.

This means that in the next 2-3 years, there is a high probability that the main sweeteners will be in the stage of surplus between supply and demand
.

The wrongly killed dragon

At the current node, the main reason why we pay attention to the sugar replacement industry is that the share prices of core companies have plummeted
.

Since its listing in February, Sanyuan Bio’s stock price has fallen by nearly half, and the current price-to-earnings ratio (PE-TTM) of 17.
1 times is less than the industry’s median of 25.
6 times
.
In the past four years (2018-2021), the compound growth rate of revenue and net profit attributable to the parent company has reached 79% and 99% respectively, almost double the growth
.

Jinhe Industry has a similar experience.
Since 2022, the company's stock price has dropped by 30%.
The current price-to-earnings ratio (PE-TTM) is only 14 times, which is not only lower than the company's 18 times in the past five years, but also lower than 25 times in the industry.
bit value
.

In the past year, the performance of the two leading targets has been greatly affected by the increase in the unit price of related sweeteners
.
For example, the price of acesulfame honey climbed from less than 70,000 yuan/ton at the beginning of 2021 to 90,000 yuan/ton at the end of the year, and the price of sucralose rose from 90,000 yuan/ton to less than 300,000 yuan/ton in the same period to 480,000 yuan/ton.
10,000 yuan/ton, and erythritol climbed from 16,000 yuan/ton at the beginning of the year to 20,000 yuan/ton at the end of the year.
The market has a high probability that this high price is unsustainable
.

But in fact, the performance of the two companies has different degrees of dependence on the price increase of related sweeteners.
By decomposing the volume and price of their respective food additive businesses, it can be found that the stretching effect of unit price on the performance of Jinhe Industrial is stronger than that of Sanyuan Bio.
much bigger
.

The implication is that the future performance of Sanyuan Bio is less likely to be affected by price fluctuations of erythritol
.

Finally, whether it is Jinhe Industrial or Sanyuan Bio, cost leadership is the core competitiveness of the two companies
.

The cost leadership of Jinhe Industry mainly comes from the integrated layout of upstream and downstream of the industrial chain.
The company's core raw materials for processing acesulfame potassium, diketene and sulfur trioxide, and the core raw materials for sucralose production, thionyl chloride, are all self-produced, which makes the company self-produced.
The production cost per ton of sweeteners continues to decline
.

The cost leadership of Sanyuan Bio mainly comes from focusing on the production and scale advantages of erythritol
.
Compared with the competing company, Bowlingbao, which produces erythritol as well as other raw materials such as glucose syrup, feed, starch, etc.
, Sanyuan Bio only focuses on erythritol, so it maintains cost leadership in terms of material and energy consumption.
In addition, its production capacity is more than twice that of the latter, and the advantages of scale also reduce the unit production cost
.
According to the prospectus of Sanyuan Bio, the company's erythritol gross profit margin was 14-27 percentage points higher than that of Baolingbao in the past four years
.

As a procurement cost item for downstream consumer companies, cost leadership is the key to seizing market share.
At this stage, the two leading companies have an obvious advantage.
Considering that the release of new production capacity requires careful verification by downstream customers, this cannot be achieved overnight.
, in the short term, the leading production capacity will be given priority by the market
.

At present, the stock prices of the two leading sugar substitutes have plummeted, and greater opportunities are brewing
.

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