On August 27, Shengda Bio-Pharm released its first-half year report for 2022. In the first half of 2022, the company achieved a revenue of 350 million yuan, and the net profit allocated to the parent company reached 39.932 million yuan.

In the first half of year 2022, the world is suffering from the ongoing regional war, repeated surges of Covid-19 cases, and the impact of inflation. In the domestic market, the company also faces pressure from the raw material price increase, sluggish vitamin market and energy shortage. Despite all the difficulties and unfavorable circumstances, the company achieved rapid growth in pharmaceutical vitamin, bio-preservative and newly developed clean label products.

The semi-annual report shows that Shengda is one of the first companies to engage in the development and production of biotin and biological preservatives in China. According to the statistics of Boyar, with the global market share reaching approximately 30%, Shengda is one of the major five biotin enterprises in China in 2021.

Shengda’s subsidiary Zhejiang Silver-Elephant Co., Ltd. is the leading supplier of nisin and natamycin in the world. It is one of the few enterprises capable of industrial-scale production of natural preservative nisin, natamycin, and polylysine. Silver-Elephant is recognized as the national innovative enterprise for it’s  professional, niche market-focusing properties.

Competition in vitamin field elevated to higher level, and CEP biotin and API folic acid sales on rapid rise

Data show that about 70% of the biotin and folic acids is consumed as feed preservatives, and the remaining 30% is consumed in the food and medicines fields. The demand for biotin and folic acids in the market thus is mainly influenced by the development of the feed preservatives industry and the food and medicine preservatives industry.

Since the second half of 2021, the profit of the farming industry decline sharply. As feed consumption and nutrient concentration decrease in China, the demand for biotin and folic acids has been slowing down. In 2022, the domestic vitamins industry has become even more complicated. On the one hand, the output continues to increase, which leads to an excessive supply. The market is mainly consuming the excess inventory following the overbuying in the export market. On the other hand, due to the impact of factors such the rising crude oil price and the dual control of energy consumption, enterprises that without advantages in production cost and scale will be pushed out of the market. This in the long run, will benefit the leading enterprises.

In the reporting period, the company retained its original main products' leading position in the feed and farming markets. Shengda also put great efforts in the development of high-end pharmaceutical market and lift competition to a higher level. In the reporting period, the company achieved substantial increase in CEP biotin and API folic acid in the vitamin medicines field in terms of sales volume and revenue. The sales volume and sales revenue of CEP biotin grow 222.11% and 263.87% respectively ; and the domestic sales volume and sales revenue of API folic acid grow 179.68% and 150.01% respectively.

Biological preservatives gaining momentum for long-term development

Preservatives is one of the 22 sub-categories of food additives. Biological preservatives refer to preservatives extracted from animals, plants or microorganisms, or obtained via biological engineering technologies that are safe for the human body. Compared with the main stream chemical preservatives, biological preservatives perform remarkably in terms of being "highly efficient, safe, non-toxic and no residue". It is estimated that biological preservatives will gradually replace chemical preservatives in the future.

Currently, biological preservatives are mainly used as natural food preservative in meat, dairy, beverage and instant food industries.They can also be used in pickled vegetables, breads and cakes and pastries. The market for them is huge. At present, natural microorganism-derived preservatives available in the market mainly include nisin, natamycin, polylysine, hydrochlorides of the three and lysozymes. And Silver-Elephant is able to produce the majority of them.

In the first half year of 2022, Shengda’s subsidiary Silver-Elephant has steadily improved its market share thanks to it’s excellent product quality and cost competitiveness. This further consolidates its leading position in the market. It fulfilled its forecast sales target for the first half year. The sales and net profit increased 19.74% and 21.97% respectively YOY. The quantity and sales amount of main product Nisin increased 7.74% and 8.64% respectively YOY. Meanwhile, clean label product reached semi-year sales target and sales amount increased considerably YOY.

According the analysis, due to the impact of the pandemic, domestic consumers are pursuing convenient and safer food. Catering enterprises move towards chained-store model to seek growth at lower costs. The food enterprises gear up for the customer-facing market at an accelerated pace. The market has seen significant growth for pre-made food, meat products, quick-frozen food, dairy products and braised food.

Based on 2022 semi-annual report, leading enterprises in the food industry has achieved best performance in sales compare to previous years. These enterprises include Shuanghui, Mengniu Dairy, Sanquan, Anjoy Food, and Teway Food. Therefore, the rapid development of downstream food industry will hopefully drive growth in the biological preservatives market in the upper stream in the long run.

Strengthening "forward and backward integration strategy" and competing at higher level for better efficiency

In the first half of 2022, the world is suffering from the ongoing regional war and repeated surges of Covid-19 cases. The raw material price kept rising, which led to the cost increase for the whole supply chain. Subsequently, the vitamin market at home and abroad slipped into a sluggish state that was the worst in more than a decade. Given that the sales of most products were declining to different extents and homogeneous and low-price competition was intensifying, we strengthened the implementation of our "forward and backward integration" strategy. In the forward integration part we elevated our biotin and folic acid products to a higher-end market, i.e., from the original feed additives market to the medicine API (active pharmaceutical ingredients) market, while maintaining our original main products' leading market share. In the backward integration part, we established a green cycle model of the industrial ecology, taking multiple measures simultaneously to lower production cost and improve production efficiency.

In the reporting period, in implementing the forward integration strategy, the company improved product quality by ceaselessly optimizing production technologies. The company also worked continuously to get various certifications, which optimized the supply side and helped us open up a second growth point on a new lane of competition. The company have passed the AEO Advanced Certification by the Customs, and obtained the biotin CEP Certificate (Certificate of Suitability to the Monographs of the European Pharmacopoeia) issued by European Directorate for the Quality of Medicines & HealthCare (EDQM). This makes Shengda the first biotin API manufacturer who attained this certificate in China. The company have also successfully registered biotin and folic acid products in India, which is another step toward the medicine API market.

With regard to the backward integration strategy, the company have set up production bases in Anhui (for synthesis) and Tongliao (for fermentation) to fully utilize the local resources of these two places. The bases provide upper-stream raw material support and help enlarge the production capacity for Shengda’s whole product line. The full product line include vitamin products, environment-friendly water-based polyurethane products and fermented products such as food preservatives and clean labels. Tongliao Shengda fully utilizes its resources advantages to actively build a green cycle model of industrial ecology. Aiming at the recycling of byproducts, it pushes forward technology research and development and has preliminary finished the development of several effective technical routes for the cycle of "raw materials - production resources - products". Tongliao Shengda has also started to sell steam, yet another way to expand profit and one more step to improve profitability.

The semi-annual report reveals that, in the first half of 2022, the operation capability of Anhui Shengda improved remarkably. The company not only fully take advantage of its important role in the industrial chain, but also actively expand its market with its independent products and increasing profit. Anhui Shengda’s main business revenue reached 87,483,400 yuan, and its main business profit reached 3,176,000 yuan.

Tongliao's construction efforts over the years bear fruits. In the first half of the year 2022, the production level improved notably compare with the same period of last year. The sales of thermal power and steam further improved its profitability. Tongliao Shengda turned loss into profit in the first half year, achieving a revenue of 87,985,100 yuan and a net profit of 930,400 yuan.

Equipped with advantages in talents, technology and facilities, Shengda Institute provides continuous technical support to the company and its subsidiaries in areas of  green catalysis technology, synthetic biology technology, and the research and development of products. During the reporting period, the company's R&D expenses were 19,863,400 yuan, with an YOY increase of 1.72%. In the reporting period, the company and its subsidiaries were awarded two National Level invention patents and won a quality award by the municipal government of Taizhou. (CIS)