Key takeaway

In 2Q26, ANGEL YEAST's domestic sales rose 16.07% YoY and maintained strong momentum. We expect yeast extract (YE) and dry yeast sales to recover, yeast protein to grow rapidly, and the consolidation of the sugar mill to boost results. Overseas order growth slowed due to factors such as the US-Iran conflict, but is expected to accelerate and recover in 2H26. On the earnings side, cost savings drove gross margin improvement, while foreign exchange losses increased significantly. Looking ahead to the full year, the recovery in domestic demand should bolster double-digit or higher revenue growth, while the booming yeast protein market should create a new growth driver. We are optimistic that the company will deliver high-quality results for the full year.

Event

The company released its 1H26 report:

In 1H26, the company recorded revenue of RMB9.187bn, up 16.3% YoY; net profit attributable to shareholders of the parent company of RMB881mn, up 10.21% YoY; and net profit attributable to shareholders of the parent company excluding non-recurring gains and losses of RMB794mn, up 7.02% YoY.

In 2Q26, the company recorded revenue of RMB4.653bn, up 13.35% YoY; net profit attributable to shareholders of the parent company of RMB455mn, up 6.01% YoY; and net profit attributable to shareholders of the parent company excluding non-recurring gains and losses of RMB408mn, up 0.82% YoY.

Quick Take

Yeast products maintained strong momentum in 2Q26, with domestic sales outperforming overseas sales

Domestic yeast products performed strongly in 2Q26. We expect higher sales volume and prices of yeast protein to contribute incremental revenue, while yeast extract (YE) and dry yeast sales recovered steadily and the consolidation of the sugar mill contributed revenue. The core yeast product categories maintained impressive growth of around 15% in 2Q26, while other categories also delivered outstanding performance. By product, revenue from the company's core yeast and processed yeast products, sugar products, packaging business, and food ingredients was RMB3.427bn, RMB268mn, RMB122mn, and RMB572mn, respectively, in 2Q26, up 14.97%, 17.88%, 23.68%, and 25.84% YoY, respectively.

By region, the domestic market maintained the strong growth seen in 1Q26, while overseas growth slowed due to factors such as the US-Iran conflict. Overseas orders are expected to recover gradually in 2H26. Domestic and overseas revenue was RMB2.676bn and RMB1.941bn, respectively, in 2Q26, up 16.07% and 9.20% YoY, respectively.

By channel, offline channels outperformed online channels. Offline and online revenue was RMB3.667bn and RMB951mn, respectively, in 2Q26, up 20.88% and down 9.47% YoY, respectively.

Lower costs lifted gross margin, while foreign exchange losses weighed on profitability

In 1H26, the company's gross margin increased by 0.71 pcts YoY to 26.8%, while its net profit margin attributable to shareholders of the parent company decreased by 0.53 pcts to 9.59%. In 2Q26, the company's gross margin increased by 0.93 pcts YoY to 27.12%, while its net profit margin attributable to shareholders of the parent company decreased by 0.68 pcts to 9.78%. Mainly due to:

Gross margin: The sharp decline in domestic molasses prices during the 2025/26 crushing season was the main driver of the gross margin improvement, followed by a higher contribution from high-margin products such as yeast extract and yeast protein. However, the improvement was expected to be partially offset by higher energy prices and labor costs.

Expense ratios: Overall expense ratios remained relatively stable, although the cost structure changed and employee compensation increased. In 1H26, the selling expense ratio was 5.23%, down 0.35 pcts YoY; the administrative expense ratio was 3.27%, down 0.15 pcts YoY; and the R&D expense ratio was 3.98%, up 0.11 pcts YoY. In 2Q26, the selling expense ratio was 5.25%, down 0.33 pcts YoY; the administrative expense ratio was 3.39%, up 0.02 pcts YoY; and the R&D expense ratio was 4.31%, up 0.19 pcts YoY. By expense category, compensation for sales personnel and administrative personnel increased by 16.99% and 24.93%, respectively, in 1H26, while advertising and promotional expenses decreased by 7.69% YoY. 2Q26, up 1.76 pcts YoY. The appreciation of the renminbi increased the company's foreign exchange losses.

Foreign exchange losses: The financial expense ratio was 1.87% in 1H26, up 1.78 pcts YoY, and 1.84% in Foreign exchange losses totaled RMB85.59mn in 1H26, versus foreign exchange gains of RMB58.52mn in the same period last year. This increased the related financial expenses by RMB144mn and signi ficantly affected the company's profit performance.

Cash flow performance: In 2Q26, cash receipts from sales reached RMB4.915bn, up 9.95% YoY, while net operating cash flow reached RMB570mn, up 10.43% YoY.

Earnings forecast:

We expect the company to generate revenue of RMB19.248bn, RMB21.239bn, and RMB23.412bn in 2026-2028, respectively, and net profit attributable to shareholders of the parent company of RMB1.851bn, RMB2.228bn, and RMB2.456bn, respectively, corresponding to P/E ratios of 20.39x, 16.94x, and 15.37x.

Risks:

1) Risk of rising prices for molasses and other raw materials: Molasses accounts for a high proportion of production costs in the yeast industry. Its price has generally trended upward in recent years, significantly affecting the company's profitability. If raw material prices rise further and substitutes such as hydrolyzed sugar cannot provide an effective offset, the company's earnings growth will be adversely affected. 2) Food safety risk: Yeast and its derivatives are widely used in baking, food manufacturing, brewing, and other applications. Any related food safety incident would undermine customers' trust in the company's products and have a material adverse effect on its business operations. 3) Risk of demand recovery falling short of expectations: Currently, the company's operations remain constrained by the pace of recovery in downstream demand. If demand recovery falls short of expectations, the company's operating performance will remain under some pressure in the short term.