The Zhitong Finance App learned that Shanxi Securities released a research report saying that currently there is still a lot of room for improvement in the underlying synthetic biology technology, the industry is still in the early stages of the life cycle, and product companies are more likely to grow. From a short-term perspective, product selection ability will have a critical impact on the short-term financial performance of product companies. Excellent products should have the two characteristics of “mature downstream application” and “cost leadership” to solve actual commercial needs: mature downstream applications: 1) the potential market is broad; 2) the demand is deterministic, and the market cost education is low. Cost leadership: The probability of technology implementation is high, and it has a cost advantage over existing alternative products.

In the long run, platform-based capabilities determine the R&D extension and product expansion space of synthetic biology companies. Synthetic biology R&D platforms with solid R&D capabilities, automation, and AI are fundamental to continuous growth, so “strong R&D capabilities” and “rich reserve categories” are also critical. In this context, it is recommended to focus on Huaheng Biotech (688639.SH) (buy-B), Kaisai Biotech (688065.SH) (+B), Meihua Biotech (600873.SH), Shengquan Group (), Jiabiyou (Dubai), Rhine Biotech (002166.SZ), Wuxi Jinghai (836547.BJ), and Lanxiao Technology (300487.SZ). 605589.SH 688089.SH

The main views of Shanxi Securities are as follows:

Engineered synthetic organisms to improve the competitiveness of biological products

Synthetic biomantry rationally designs, transforms, and even re-synthesizes biological systems from scratch according to specific goals, benefiting humans through biological engineering. CB Insights predicts that the global synthetic biology market may reach $18.9 billion in 2024, or a CAGR of 28.8% for the period 2019-2024. McKinsey predicts that the global economic impact of synthetic biology will reach $100 billion by 2025.

Compared with traditional chemical engineering, synthetic biological manufacturing has three major advantages: 1) Raw materials are renewable, reaction conditions are mild, and emissions can be effectively reduced. 2) There is great potential for process optimization, and there is significant room for cost reduction. 3) Strong technical platform, R & D experience and equipment can be migrated, and product expansion space is broad.

Synthetic biology is still in its early stages of development, and there are two major drivers for the future:

1) EU carbon tariffs create “green trade barriers”, and the penetration rate of bio-based materials is expected to increase. CBAM is linked to the difference in carbon emission costs and carbon emissions within and outside the EU. In the future, CBAM will increase the cost of exports from outside the EU to the EU. The penetration rate of bio-based materials is expected to increase due to their low carbon emission reduction advantages.

2) The non-food route aims to solve hidden carbon source concerns. In the long run, synthetic biological manufacturing using food as a carbon source faces hidden concerns about “competing with others for food,” and biomass resource utilization technology will gradually shift to non-food biomass technology.

The rock of another mountain: Although there is a gap between foreign technology and application development, Chinese companies still have great potential

Although there is a gap between Chinese companies and foreign companies in fields such as DBTL recycling and application development, we believe that domestic companies have an opportunity to catch up in the field of synthetic biological manufacturing, based on the advantages of fermentation engineering and separation and purification technology, the catch up of underlying technology, and the continuous development of market applications. Shanxi Securities reviewed Amyris, the world's first product listed company, and Ginkgo, the first platform-based listed company, and obtained the following conclusions:

1) Amyris bankruptcy lessons: a) Product selection determines the difficulty of entering the downstream market, and cost leadership is a necessary condition for industrialization. b) The “To B” and “To C” business models are very different, and enterprise switching faces application development risks.

2) Ginkgo's growth philosophy: The platform type is a long-term necessary path for the synthetic biology industry, but short-term performance is constrained by scale effects. Platform-based enterprises must expand their platform capabilities through mergers and acquisitions, and reduce costs by expanding the number of projects. Latecomer Chinese companies choose to cooperate with scientific research institutions as one of the options for reducing short-term business risks.

Risk warning: risk of industry development falling short of expectations; risk of R&D failure: risk of increased industry competition and falling short of expectations due to lower product selection barriers; risk of fluctuations in raw material prices; risk of downstream demand falling short of expectations.