Investment Rating - The report maintains an "Outperform" rating for Fufeng Group [2][10]. Core Views - In 2024, the profit attributable to shareholders decreased by 26.5% year-on-year, with revenues of RMB 27.8 billion, a decline of 0.9% primarily due to reduced revenues from the colloid segment [6][10]. - The company continues to implement its internationalization strategy, establishing two overseas production bases and expanding sales offices in Vietnam, the United States, and the Netherlands [9][10]. - The commissioning of a new monosodium glutamate (MSG) factory led to a significant increase in sales volume, with MSG sales volume rising by 26.8% to approximately 1.64 million tons in 2024 [7][10]. - The average selling price of MSG decreased by about 16.1% to RMB 6,714 per ton, which offset the increase in sales volume, resulting in a slight revenue increase of 6.4% to RMB 10.9966 billion [7][10]. - The animal nutrition segment saw a revenue decrease of 1.8% to RMB 8.7393 billion, but the gross profit margin improved by 6.1 percentage points to 23.2% due to increased production capacity of threonine [8][10]. Financial Summary - The projected net profit attributable to the parent company for 2025-2027 is RMB 2.530 billion (-25%), RMB 2.784 billion (-25%), and RMB 3.132 billion (new) respectively [10]. - The company’s earnings per share (EPS) are expected to be RMB 1.01 in 2025, RMB 1.11 in 2026, and RMB 1.25 in 2027 [5][10]. - The target price is set at HK$7.68, based on a P/E ratio of 7 times for 2025 [2][10].

Core Viewpoint - The report from CICC indicates an upward revision of Fufeng Group's 2025 profit forecast by 6% to 2.41 billion HKD, with a new 2026 profit forecast of 2.56 billion HKD, driven by recovering MSG prices and declining corn prices [1] Group 1: 2024 Performance - Fufeng Group's 2024 revenue was 27.757 billion HKD, a year-on-year decrease of 0.9%, with a net profit of 2.312 billion HKD, corresponding to an earnings per share of 0.92 HKD, which aligns with market expectations [2] - The company declared a total annual dividend of 0.40 HKD per share, resulting in a payout ratio of 40% [2] - Revenue by business segments: Food additives 14.365 billion HKD (51.8%), Animal nutrition 8.739 billion HKD (31.5%), High-end amino acids 2.217 billion HKD (8.0%), and Colloid business 1.817 billion HKD (6.5%) [2] - Gross margins for segments: Food additives 10.8%, Animal nutrition 23.2%, High-end amino acids 37.0%, and Colloid business 41.5%, with notable declines in food additives and colloid segments due to new capacity and price drops [2] Group 2: Market Trends - MSG prices are expected to stabilize and recover as new production capacities come online and corn prices slightly increase, with current market prices at 7,319 HKD/ton, up 419 HKD/ton from the 2024 low [3] - Amino acid prices have seen a decline due to the end of overseas and seasonal restocking, but profitability remains relatively strong due to lower raw material costs [3] Group 3: International Expansion - The company plans to establish two overseas production bases and develop sales offices in Vietnam, the USA, and the Netherlands, enhancing its global competitiveness amid anti-dumping challenges in the amino acid sector [4]

Financial Performance - The Group's revenue slightly decreased by 0.9% to approximately RMB 27.8 billion in 2024 compared to 2023, primarily due to a decrease in the revenue of the Colloid segment [3] - Overall gross profit decreased by 19.1% to approximately RMB 5.1 billion in 2024, mainly due to reduced gross profit contributions from the Colloid and Food Additive segments [3] - Profit attributable to the Shareholders amounted to approximately RMB 2.3 billion, representing a decrease of 26.5% compared to 2023 [3] - Earnings per share (Basic) was RMB 91.86 cents, down from RMB 124.02 cents in 2023 [3] - Return on equity was 12.6%, a decline from 18.1% in 2023 [3] - The Group's operating profit decreased to RMB 2.5 billion in 2024 from RMB 3.7 billion in 2023 [5] - The Group's profit before income tax expense for 2024 was RMB 2,837,031,000, a decrease of 26.2% from RMB 3,850,245,000 in 2023 [63] Dividends - The Board proposed final dividends of HK 22 cents per Share, resulting in a full-year dividend of HK 40 cents per share, down from HK 58 cents in 2023 [3] - The total dividends paid in 2024 amounted to RMB 923,620,000, a decrease of 30.9% compared to RMB 1,337,558,000 in 2023 [75] - The final dividends paid in 2024 were RMB 802,567,000, compared to RMB 748,943,000 in 2023, reflecting an increase of 7.1% [75] - The Group's withholding tax on dividends from PRC subsidiaries was RMB 75,000,000 in 2024, down from RMB 102,750,000 in 2023, a decrease of 27.0% [63] - The proposed final dividend for 2024 is HKD 882,174,000 (approximately RMB 802,567,000), equating to HKD 0.35 per share, an increase from HKD 0.331 per share in 2023 [77] - The board proposed a special final dividend of HKD 75,200,000 (approximately RMB 69,393,000) for 2025, which is HKD 0.03 per share [78] Assets and Liabilities - Total assets increased to RMB 36.1 billion in 2024 from RMB 32.6 billion in 2023 [7] - Total equity rose to RMB 18.3 billion in 2024, compared to RMB 17.3 billion in 2023 [7] - Cash and cash equivalents increased to RMB 9.9 billion in 2024 from RMB 6.9 billion in 2023 [7] - Total liabilities increased to RMB 17,746,842, up from RMB 15,236,673, representing a growth of 16.5% year-over-year [8] - Current liabilities rose to RMB 16,240,497, compared to RMB 14,044,560, marking an increase of 15.7% [8] - Non-current liabilities totaled RMB 1,506,345, up from RMB 1,192,113, reflecting a growth of 26.4% [8] - The Group's total equity and liabilities reached RMB 36,089,896, up from RMB 32,560,887, showing an increase of 10.3% [8] Revenue Breakdown - Revenue from food additives increased to RMB 14,365,304,000 in 2024, up 6.44% from RMB 13,495,002,000 in 2023 [29] - Revenue from animal nutrition decreased to RMB 8,739,272,000 in 2024, down 1.83% from RMB 8,901,002,000 in 2023 [29] - High-end amino acid revenue rose to RMB 2,217,371,000 in 2024, an increase of 12.39% from RMB 1,972,812,000 in 2023 [29] - Revenue from external customers in the PRC amounted to RMB 19,436,449,000 in 2024, down from RMB 20,482,261,000 in 2023 [31] - Approximately 70% of the Group's revenue was generated from sales to customers in the PRC in 2024, compared to 73% in 2023 [33] - The Group's revenue from external customers in Europe and other countries increased to RMB 8,320,861,000 in 2024 from RMB 7,524,614,000 in 2023 [31] Expenses and Costs - Selling and marketing expenses increased by approximately RMB 159.0 million, or 8.8%, mainly due to higher transportation costs [178] - Administrative expenses decreased by approximately RMB 109.8 million, or 9.1%, attributed to reduced research and development expenses [179] - Interest expenses on bank borrowings increased to RMB (219,681,000) in 2024 from RMB (185,888,000) in 2023, reflecting a rise of 18.2% [48] - The average selling price of MSG decreased by 16.3% to approximately RMB 7,676 per tonne in 2024 compared to 2023 [125] - The average price of corn kernels decreased by 16.1% to approximately RMB 1,964 per tonne, accounting for 56.5% of total production costs [163] - Coal costs represented 17.4% of total production costs, with an average unit cost of RMB 385 per tonne, down 6.6% from the previous year [169] Cash Flow and Financing - The Group had a net cash inflow of approximately RMB 2,955.3 million from operating activities, compared to RMB 1,704.9 million in 2023 [197] - As of December 31, 2024, the Group's total cash and bank balances were approximately RMB 13,657.1 million, an increase from RMB 10,880.2 million in 2023 [194] - Total bank borrowings increased to approximately RMB 11,364.5 million, up from RMB 9,724.5 million in 2023 [195] - The current bank borrowings, unsecured, increased to RMB 7,183,043,000 in 2024 from RMB 5,931,000,000 in 2023, reflecting a growth of 21.1% [102] Market and Production Insights - The annual designed production capacity for MSG increased by 24.1% to 1,650,000 tonnes, with full capacity utilization achieved during the year [171] - The export volume of threonine increased by 26% year-on-year to about 718,200 tonnes in 2024, driven by increased overseas demand [127] - China's total corn production in 2024 was approximately 295 million tonnes, a 2.1% increase from 2023, while corn imports dropped by 49.2% to 13.64 million tonnes [120] - China's coal production reached a record high of approximately 4,760 million tonnes in 2024, an increase of 1.3% compared to 2023, with coal imports rising by 14.4% [122] Other Financial Metrics - Net foreign exchange gains increased to RMB 194,106,000 in 2024 from RMB 160,747,000 in 2023, representing a growth of 20.7% [46] - Gains from sales of carbon emission quotas surged to RMB 113,081,000 in 2024, a significant increase from RMB 1,460,000 in 2023 [46] - Finance income rose to RMB 498,661,000 in 2024, up from RMB 330,504,000 in 2023, marking an increase of 50.9% [48] - The capitalisation rate for borrowing costs decreased to 1.95% in 2024 from 2.43% in 2023 [49] - The weighted average effective interest rate for borrowings decreased to 1.90% in 2024 from 2.10% in 2023, suggesting a reduction in borrowing costs [105]

Economic Growth and GDP - China's GDP grew by 5.3% and 4.7% in the first and second quarters of 2024, respectively, with an overall growth of 5.0% for the period[4][5] - The global economy is projected to grow by 3.2% in 2024, with China targeting a GDP growth of around 5%[51] Agricultural Production and Prices - The annual output of corn in China in 2024 is expected to reach approximately 292 million tonnes, an increase of about 1.1% compared to 2023[6] - The price of corn decreased by 9.8% from RMB2,572 per tonne in Q4 2023 to RMB2,321 per tonne in Q1 2024, and further decreased by 15.2% to RMB2,318 per tonne in the first half of 2024[6] - Corn and coal prices are expected to remain at low levels due to the harvest season and market conditions[51] Coal Imports and Prices - Coal imports increased by 12.5% to approximately 250 million tonnes in the period, compared to the corresponding period[6] - Average price of coal, a key energy cost, decreased by 7.6% to approximately RMB389 per tonne[9] Food Additives and MSG - The price of MSG decreased by 15.4% to approximately RMB7,899 per tonne in the period[6] - MSG revenue was stable at approximately RMB5,262.0 million, with a 13.8% decrease in ASP to RMB7,040 per tonne and a 22.2% increase in sales volume to 747,431 tonnes[17] - Annual production capacity for MSG remains unchanged at 1,330,000 tonnes, with no change from 2023[32] - New MSG capacity of 400,000 tonnes is still in trial run and not included in current capacity[33] - ASP of MSG and xanthan gum is expected to move within a narrow range, while threonine and lysine prices may remain stable[51] Xanthan Gum and Threonine/Lysine - The price of xanthan gum dropped to approximately RMB25,000 per tonne in the period[7] - Xanthan gum revenue and gross profit declined significantly due to a drop in ASP, while threonine and lysine saw increased ASP and sales volume[9] - The export volume of threonine and 98% lysine increased by 43% and 24% respectively, reaching 362,000 tonnes and 548,000 tonnes in the period[8] - The prices of threonine and 98% lysine in the period were around or over RMB10,000 per tonne[8] - Threonine revenue increased by 29.9% to RMB1,149.3 million, with ASP up 11.3% to RMB9,373 per tonne and sales volume up 16.8% to 122,615 tonnes[17] - Lysine revenue increased by 13.7% to RMB1,032.2 million, with sales volume up 4.2% to 159,784 tonnes[18] Revenue and Profit Trends - The Group's revenue trend shows an increase from RMB13,368 million in 2023 to RMB28,007 million in 2024[8] - Revenue slightly decreased by 1.6% to approximately RMB13,368.0 million, primarily due to declines in the Colloid and Others segments offsetting growth in other segments[9] - Overall gross profit decreased by 22.3% to approximately RMB2,298.1 million, driven by lower contributions from the colloid and food additives segments[9] - Profit attributable to shareholders decreased by 32.3% to approximately RMB1,041.3 million[9] - Revenue for the first half of 2024 was RMB 13,368 million, a slight decrease from RMB 13,580 million in the same period of 2023[88] - Gross profit for the first half of 2024 was RMB 2,298 million, down from RMB 2,957 million in 2023[88] - Operating profit for the first half of 2024 was RMB 1,111 million, compared to RMB 1,732 million in 2023[88] - Net profit attributable to shareholders for the first half of 2024 was RMB 1,041 million, a decrease from RMB 1,538 million in 2023[88] - Basic earnings per share for the first half of 2024 were RMB 0.4131, down from RMB 0.6070 in 2023[88] - Total comprehensive income attributable to shareholders for the first half of 2024 was RMB 1,040 million, compared to RMB 1,535 million in 2023[93] Segment Performance - Food additives segment revenue increased by 5.5% to approximately RMB6,916.9 million, driven by higher contributions from MSG and starch sweeteners[15] - Gross profit of the food additives segment decreased by 21.9% to approximately RMB759.3 million, with a gross profit margin of 11.0%, down 3.8 percentage points[15] - Animal nutrition segment revenue increased by 2.5% to RMB4,194.5 million, with gross profit up 43.6% to RMB853.6 million and gross margin rising 5.9 percentage points to 20.4%[17] - High-end amino acid segment revenue increased by 30.0% to RMB1,075.3 million, with gross profit up 32.5% to RMB395.9 million and gross margin rising 0.7 percentage points to 36.8%[19] - Colloid segment revenue decreased by 44.9% to RMB898.9 million, with gross profit down 64.7% to RMB352.1 million and gross margin falling 21.9 percentage points to 39.2%[20] - Other products revenue decreased by 40.1% to RMB282.4 million, with a gross loss of RMB62.7 million[23] Production Costs and Raw Materials - Average price of corn kernels, a key raw material, decreased by 13.3% to approximately RMB2,078 per tonne[9] - Corn kernels accounted for 58.2% of total production costs, with an average price decrease of 13.3% to RMB2,078 per tonne and total cost increase of 5.7%[26] - Coal accounted for 16.6% of total production costs, with an average unit cost decrease of 7.6% to RMB389 per tonne[29] Financial Performance and Ratios - Total gross profit margin for the period was 17.2%, down from 21.8% in the corresponding period[13][14] - Finance income for the first half of 2024 was RMB 219 million, an increase from RMB 135 million in 2023[88] - Selling and marketing expenses for the first half of 2024 were RMB 939 million, up from RMB 885 million in 2023[88] - Administrative expenses for the first half of 2024 were RMB 473 million, down from RMB 556 million in 2023[88] - Other income for the first half of 2024 was RMB 140 million, compared to RMB 107 million in 2023[88] - Total assets increased to RMB 34,901,139,000 as of June 30, 2024, compared to RMB 32,560,887,000 at the end of 2023, reflecting a growth of 7.2%[96][98] - Cash and cash equivalents rose significantly to RMB 9,837,999,000, up from RMB 6,856,177,000 at the end of 2023, marking a 43.5% increase[96] - Total liabilities increased to RMB 17,356,196,000, up from RMB 15,236,673,000 at the end of 2023, a 13.9% rise[96][98] - Retained earnings grew to RMB 15,808,746,000, compared to RMB 15,580,498,000 at the end of 2023, showing a 1.5% increase[98] - Borrowings under current liabilities surged to RMB 10,902,686,000, up from RMB 9,577,500,000 at the end of 2023, a 13.8% increase[98] - Inventories decreased to RMB 4,799,060,000, down from RMB 6,123,216,000 at the end of 2023, a 21.6% reduction[96] - Total equity slightly increased to RMB 17,544,943,000, compared to RMB 17,324,214,000 at the end of 2023, a 1.3% growth[98] - Deferred income tax assets rose significantly to RMB 30,561,000, up from RMB 8,602,000 at the end of 2023, a 255.3% increase[96] - Contract liabilities increased to RMB 791,030,000, up from RMB 537,011,000 at the end of 2023, a 47.3% rise[98] - Other receivables and prepayments grew to RMB 306,765,000, compared to RMB 237,987,000 at the end of 2023, a 28.9% increase[96] Cash Flow and Dividends - Net cash inflow from operating activities was approximately RMB2,964.8 million, compared to RMB1,332.0 million in the corresponding period[42] - Net cash inflow from operating activities was RMB 2,964,812 thousand, driven by cash generated from operations of RMB 3,272,484 thousand[104] - Net cash outflow from investing activities amounted to RMB 650,275 thousand, primarily due to purchases of property, plant, and equipment of RMB 798,736 thousand[104] - Net cash inflow from financing activities was RMB 631,844 thousand, supported by proceeds from bank borrowings of RMB 9,639,686 thousand[106] - Cash and cash equivalents increased by RMB 2,946,381 thousand, reaching RMB 9,837,999 thousand at the end of the half-year[106] - Dividends paid to shareholders totaled RMB 802,778 thousand, reflecting the company's commitment to shareholder returns[102] - The interim dividend for 2024 includes a basic dividend of 16.0 HKD cents per share and a special dividend of 2.0 HKD cents per share[37] Share Repurchases and Treasury Shares - The company repurchased a total of 4,799,000 shares on the Stock Exchange at an aggregate consideration of approximately HKD 20.0 million before expenses during the period[66] - The company repurchased an additional 1,000,000 shares in July 2024 at an aggregate consideration of approximately HKD 4.3 million before expenses[66] - The company repurchased and canceled treasury shares worth RMB 18,252 thousand, reducing share capital[102] Employee and Executive Compensation - The company had approximately 17,000 employees as of 30 June 2024[54] - The annual remuneration of Executive Directors increased by RMB 763,000 for Mr. Li Xuechun, RMB 433,000 for Mr. Li Deheng, and RMB 388,000 for Mr. Li Guangyu, effective from 1 April 2024[57] Share Options and Equity - The number of share options available for grant under the Share Option Scheme as of 1 January 2024 and 30 June 2024 were 250,473,403 Shares and 249,585,403 Shares respectively, representing approximately 9.9% of the issued Shares[76] - The company granted options to subscribe for an aggregate of 2,200,000 Shares, 2,000,000 Shares, and 888,000 Shares on 31 March 2021, 4 July 2022, and 29 April 2024 respectively to eligible employees[76] - The fair values of the options granted on 31 March 2021, 4 July 2022, and 29 April 2024 were RMB1,164,000, RMB2,589,000, and RMB832,000 respectively[79] - The average share prices for the options granted on 31 March 2021, 4 July 2022, and 29 April 2024 were HKD2.80, HKD4.96, and HKD5.52 respectively[79] - The exercise prices for the options granted on 31 March 2021, 4 July 2022, and 29 April 2024 were HKD2.95, HKD4.96, and HKD5.52 respectively[79] - The expected volatility for the options granted on 31 March 2021, 4 July 2022, and 29 April 2024 were 44.35%, 42.06%, and 40.46% respectively[79] - The expected dividend yields for the options granted on 31 March 2021, 4 July 2022, and 29 April 2024 were 6.93%, 3.76%, and 9.89% respectively[79] - The risk-free rates for the options granted on 31 March 2021, 4 July 2022, and 29 April 2024 were 1.22%, 2.85%, and 4.06% respectively[79] - As of 30 June 2024, Mr. Li Xuechun, an executive Director and the chairman of the company, held 1,000,217,461 Shares, representing 39.69% of the total issued share capital[81] - As of 30 June 2024, Mr. Li Deheng, an executive Director and the chief executive of the company, held 35,320,160 Shares, representing 1.40% of the total issued share capital[81] Tax and Financial Liabilities - Current income tax expense for 2024 was RMB 232,821,000, a decrease from RMB 288,179,000 in 2023[184] - Deferred income tax expense for 2024 was RMB (46,189,000), compared to RMB (68,747,000) in 2023[184] - Withholding tax paid in 2024 was RMB 24,230,000, a significant decrease from RMB 77,750,000 in 2023[184] - U.S. enterprise income tax increased to RMB 12,142,000 in 2024 from RMB 4,738,000 in 2023[184] - The company's subsidiaries in BVI and Cayman Islands are exempted from income tax[185] - Withholding tax rate for dividends from PRC subsidiaries is 10%, but can be reduced to 5% under certain tax treaty arrangements[187] - The company did not provide for withholding tax for the period ended 30 June 2024 as it does not expect PRC subsidiaries to distribute retained earnings[187] - Total financial liabilities due within 1 year are RMB 14,329,086,000, with borrowings accounting for RMB 10,902,686,000[152] - Interest payments on borrowings due within 1 year are RMB 82,212,000[152] - Lease liabilities due within 1 year are RMB 65,000[152] - Total contractual cash flows for financial liabilities are RMB 14,930,220,000[152] Property, Plant, and Equipment - Property, plant and equipment and intangible assets increased to RMB 11,982,098 thousand as of 30 June 2024, up from RMB 9,822,740 thousand as of 30 June 2023[193] - Additions to property, plant and equipment and intangible assets totaled RMB 868,003 thousand for the six months ended 30 June 2024[193] - Depreciation and amortization for property, plant and equipment and intangible assets amounted to RMB 575,683 thousand for the six months ended 30 June 2024[193] - Right-of-use assets increased to RMB 945,283 thousand as of 30 June 2024, compared to RMB 892,752 thousand as of 31 December 2023[197] - Lease liabilities decreased to RMB 117 thousand as of 30 June 2024, down from RMB 565 thousand as of 31 December 2023[197] - Leasehold land-use rights increased to RMB 945,160 thousand as of 30 June 2024, up from RMB 892,235 thousand as of 1 January 2024[199] - Additions to leasehold land-use rights totaled RMB 65,239 thousand for the six months ended 30 June 2024[199] - Depreciation and amortization for leasehold land-use rights amounted to RMB 12,314 thousand for the six months ended 30 June 2024[199] Financial Risk Management - The Group's financial risk management policies remained unchanged since the end of 2023, with exposure to market risk, credit risk, and liquidity risk[122][126] - Credit risk is managed by depositing cash in reputable financial institutions and granting credit to customers with good credit history, typically for no more than 90 days[123][124][128][130] - The Group's trade receivables are subject to the HKFRS 9 simplified approach for measuring expected credit losses, with no significant impairment loss identified[130] - The loss allowance for trade receivables as of 30 June 2024 was RMB 29,672 thousand, with expected loss rates of 1.80% for 3 months, 16.85% for 3-12 months, and 95.43% for over 12 months[135] - The gross carrying amount of trade receivables as of 30 June 2024 was RMB 1,022,458 thousand, with RMB 976,307 thousand within 3 months, RMB 40,632 thousand within 3-12 months, and RMB 5,519 thousand over 12 months[135] - The loss allowance for trade receivables as of 31 December 2023 was RMB 34,538 thousand, with expected loss rates of 2.06% for 3 months, 29.83% for 3-12 months, and 97.63% for over 12 months[135] - The gross carrying amount of trade receivables as of 31 December 2023 was RMB 1,083,530 thousand, with RMB 1,051,258 thousand within 3 months, RMB 27,427 thousand within 3-12 months, and RMB 4,845 thousand over 12 months[135] - The opening loss allowance for trade receivables at 1 January 2023 was RMB 33,297 thousand

Investment Rating - Buy (First Coverage) with a target price of HKD 5.51 [1] Core Views - Fufeng Group is a global leader in biological fermentation with a diversified product portfolio, including food additives, animal nutrition, high-end amino acids, and colloids [7] - The company faces short-term profitability pressure due to declining revenue and net profit in H1 2024, primarily driven by reduced income from colloids and other segments [2] - Despite challenges, the company maintains a stable revenue base in food additives and animal nutrition, with high-end amino acids showing strong growth potential [2][12] Business Performance - H1 2024 revenue decreased by 1.6% YoY to RMB 13.37 billion, with net profit declining by 32.3% YoY to RMB 1.04 billion [2] - Food additives and animal nutrition segments contributed 51.7% and 31.4% of total revenue, respectively, while high-end amino acids grew by 29.9% YoY [2] - Gross margin dropped by 5.1 percentage points to 17.2%, mainly due to lower profitability in colloids and other segments [2][16] Segment Analysis - **Food Additives**: Revenue increased by 5.5% YoY to RMB 6.92 billion, but gross margin fell by 3.8 percentage points to 11.0% due to lower MSG prices [2][16] - **Animal Nutrition**: Revenue grew by 2.5% YoY to RMB 4.20 billion, with gross margin improving by 5.9 percentage points to 20.4% driven by threonine and lysine price increases [2][16] - **High-End Amino Acids**: Revenue surged by 29.9% YoY to RMB 1.08 billion, with gross margin slightly up by 0.7 percentage points to 36.8% [2][16] - **Colloids**: Revenue dropped by 44.9% YoY to RMB 900 million, with gross margin plunging by 21.9 percentage points to 39.2% due to a 48.2% decline in xanthan gum prices [2][16] Geographic Expansion - Domestic revenue accounted for 73.1% of total revenue in 2023, growing by 4.9% YoY, while overseas revenue declined by 5.4% [17] - The company plans to establish production bases in the US and Eastern Europe for threonine and lysine to mitigate geopolitical risks and improve supply chain efficiency [17] Cost Control - Sales and management expense ratios remained stable at 6.9% and 3.5%, respectively, in H1 2024 [2][20] - The company aims to optimize logistics and reduce unit transportation costs to further lower expense ratios [20] Financial Projections - Net profit is expected to grow to RMB 2.19 billion, RMB 3.23 billion, and RMB 4.32 billion in 2024, 2025, and 2026, respectively [3] - EPS is projected to be RMB 0.87, RMB 1.28, and RMB 1.71 for 2024, 2025, and 2026 [3] Valuation - The company is valued at 4x 2025 earnings, translating to a target price of HKD 5.51 based on a 0.93:1 exchange rate [3]

Investment Rating - The report assigns a "Buy" rating to the company with a target price of HKD 5.51, based on a current price of HKD 4.24 [1][3]. Core Insights - The company reported a revenue of CNY 13.37 billion for the first half of 2024, a decrease of 1.6% year-on-year, and a net profit of CNY 1.04 billion, down 32.3% year-on-year. The decline in revenue is primarily attributed to significant reductions in the revenue from the colloid and other segments, which offset growth in other business areas [2][9]. - The company maintains a diversified revenue mix with stable fundamentals in food additives and animal nutrition, despite short-term profit pressures [2][9]. - The report highlights the company's leading position in the global market for monosodium glutamate and xanthan gum, supported by strong biotechnological capabilities and resource integration [7][12]. Revenue and Profitability Analysis - For the first half of 2024, the revenue breakdown by segment is as follows: food additives (CNY 6.92 billion, +5.5%), animal nutrition (CNY 4.20 billion, +2.5%), high-end amino acids (CNY 1.08 billion, +29.9%), colloids (CNY 0.90 billion, -44.9%), and others (CNY 0.28 billion, -40.1%) [2][12]. - The overall gross margin for the first half of 2024 was 17.2%, down 5.1 percentage points year-on-year, with a net margin of 7.8%, down 3.4 percentage points year-on-year. The decline in gross margin is mainly due to significant drops in profitability in the colloid and other segments [15][16]. Future Earnings Forecast - The forecast for net profit attributable to the parent company for 2024-2026 is CNY 2.19 billion, CNY 3.23 billion, and CNY 4.32 billion, respectively, with corresponding EPS of CNY 0.87, CNY 1.28, and CNY 1.71 [3][23]. - The report anticipates revenue growth rates of 1.9% for 2024, 1.6% for 2025, and 8.3% for 2026, with a projected increase in gross margins over the same period [23][22]. Business Segment Performance - The food additives segment is expected to maintain stable revenue contributions, while the animal nutrition segment is projected to benefit from improved pricing dynamics for threonine and lysine due to favorable breeding cycles [22][23]. - The high-end amino acids segment is anticipated to see significant growth, driven by new product launches and market share expansion [12][22]. - The colloid segment is expected to face challenges due to price volatility, particularly in xanthan gum, but is projected to recover as market conditions stabilize [22][23]. Cost Management and Efficiency - The company has maintained stable expense ratios, with sales and management expense ratios at 6.9% and 3.5%, respectively, for the first half of 2024. The report indicates ongoing efforts to optimize logistics and reduce unit transportation costs [20][22].

Investment Rating - The report maintains an "Outperform" rating for Fufeng Group [3][12]. Core Insights - Profit attributable to shareholders for 2024H1 decreased by 32.3% year-on-year, with an interim dividend declared at 18 HK cents per share [8][12]. - The company's operating revenue for the first half of 2024 decreased by 1.6% year-on-year to approximately RMB 13,368 million, primarily due to a decline in revenue from the Colloids and Others segment [8][12]. - Gross profit decreased by 22.3% year-on-year to RMB 2,298.1 million, mainly due to a decrease in gross profit from the Food Additives and Colloids segment [8][12]. Revenue Breakdown - In the Food Additives segment, revenue was RMB 6.917 billion, an increase of 5.46% year-on-year, with MSG revenue at RMB 5.262 billion, showing a price decrease of 13.8% and a volume increase of 22.2% [9][10]. - The Animal Nutrition segment saw revenue of RMB 4.195 billion, up 2.54% year-on-year, with Threonine revenue increasing by 29.9% to approximately RMB 1,149.3 million [9][10]. - The High-grade Amino Acids segment reported revenue of RMB 1.075 billion, a 29.96% increase year-on-year, with a gross margin of 36.8% [9][10]. - The Colloids segment experienced a revenue decline of 44.93% to RMB 899 million, with xanthan gum prices falling by 48.2% [9][10]. Export Performance - Export quantities of Threonine and 98% Lysine increased significantly, with 362,000 tonnes and 548,000 tonnes exported in the first half of 2024, representing increases of 43% and 24% year-on-year, respectively [10][11]. Strategic Developments - The company is actively pursuing international expansion and plans to develop three overseas regional marketing centers, with a focus on establishing a plant in the US [11][12]. - Plans to accelerate the development of a new 98% Lysine production facility and introduce new premium amino acid products are underway [11][12]. Earnings Forecast - The forecasted EPS for 2024, 2025, and 2026 are RMB 1.21, RMB 1.33, and RMB 1.48, respectively [12]. - The target price is set at HKD 6.51, based on a PE ratio of 4.95 times for 2024 [12].

Financial Performance - The Group's revenue slightly decreased by 1.6% to approximately RMB 13,368.0 million compared to the corresponding period[3] - Overall gross profit decreased by 22.3% to approximately RMB 2,298.1 million, primarily due to decreases in the gross profit of Food additives and Colloid segments[3] - Profit attributable to the Shareholders decreased by 32.3% to approximately RMB 1,041.3 million[3] - Basic and diluted earnings per share for the period were RMB 41.31 cents and RMB 41.30 cents, respectively, compared to RMB 60.70 cents and RMB 60.68 cents in the corresponding period[3] - Return on equity for the period was 11.9%, down from 18.9% in the corresponding period[3] Dividends - Interim dividend declared was HK 16.0 cents per share with a payout ratio of 35%[3] - The interim dividend proposed on August 29, 2024, is HKD 403,280,000 (RMB 369,098,000), down from HKD 583,392,000 (RMB 534,954,000) in the first half of 2023, representing HKD 16.0 cents (RMB 14.6 cents) per share compared to HKD 23.0 cents (RMB 21.0 cents) per share in the previous year[68] Assets and Liabilities - Total non-current assets increased to RMB 13,274.9 million from RMB 12,845.6 million[12] - Current assets increased to RMB 21,626.2 million from RMB 19,715.3 million[12] - Total assets increased to RMB 34,901.1 million from RMB 32,560.9 million[12] - Total liabilities increased to RMB 17,356,196, up 13.9% from RMB 15,236,673 as of December 31, 2023[13] - Current liabilities rose to RMB 15,784,720, reflecting a 12.4% increase from RMB 14,044,560[13] - Total equity reached RMB 17,544,943, representing a 1.3% increase from RMB 17,324,214[13] Borrowings - Borrowings surged to RMB 10,902,686, a significant increase of 14.0% from RMB 9,577,500[13] - As of June 30, 2024, total borrowings amounted to RMB 11,496,686,000, an increase of 18.1% from RMB 9,724,500,000 as of December 31, 2023[59] - Current bank borrowings secured by restricted bank balances were RMB 3,669,866,000 as of June 30, 2024, compared to RMB 3,390,000,000 as of December 31, 2023[59] Revenue Segments - The food additives segment generated revenue of RMB 6,916,923, up from RMB 6,558,505 in the previous year, reflecting an increase of about 5.47%[32] - The animal nutrition segment reported revenue of RMB 4,194,523, compared to RMB 4,090,697 in 2023, indicating a growth of approximately 2.54%[32] - The high-end amino acid segment saw revenue rise to RMB 1,075,268 from RMB 827,369, marking an increase of around 30%[32] - Revenue from the food additives segment increased by 5.5% to approximately RMB 6,916.9 million, driven by higher contributions from MSG and starch sweeteners[82] - Revenue of the animal nutrition segment increased by 2.5% to approximately RMB 4,194.5 million, with gross profit rising by 43.6% to approximately RMB 853.6 million, resulting in a gross profit margin of 20.4%[84] Cost and Profitability - The cost of sales for the Group was RMB 11,069,960, compared to RMB 10,623,333 in 2023, indicating an increase of approximately 4.19%[32] - The Group's gross profit margin decreased to approximately 17.2% in 2024 from 21.5% in 2023[32] - Gross profit for the Group was RMB 2,298,061, down from RMB 2,956,760 in 2023, representing a decrease of approximately 22.3%[32] - The average price of corn kernels, a key raw material, was approximately RMB 2,078 per tonne, down 13.3% compared to the Corresponding Period[74] - The average price of coal, a key energy cost, was approximately RMB 389 per tonne, decreasing by 7.6% compared to the Corresponding Period[74] Cash Flow and Financial Position - The net cash inflow from operating activities during the Period was approximately RMB 2,964.8 million, up from RMB 1,332.0 million in the corresponding period[108] - The Group's cash and bank balances were approximately RMB 13,596.4 million as of June 30, 2024, compared to RMB 10,880.2 million as of December 31, 2023[108] - The Group's net current assets were approximately RMB 5,841.5 million as of June 30, 2024, with a current ratio of 1.37 times[108] Market Conditions - China's GDP grew by 5.3% and 4.7% in the first and second quarters of 2024, respectively, resulting in an overall growth of 5.0% for the period[70] - The price of corn decreased by 15.2% to RMB 2,318 per tonne in the first half of 2024 compared to the corresponding period in the previous year[70] - Coal imports increased by 12.5% to approximately 250 million tonnes in the period compared to the corresponding period last year, contributing to a downward trend in coal prices[70] - The price of MSG was approximately RMB 7,899 per tonne during the period, reflecting a decrease of 15.4% compared to the previous year due to weak demand from downstream customers[70] Operational Highlights - The Group's diversified product development plan has established a business structure with multiple growth drivers, enhancing core competitiveness[73] - Capacity utilization rates for MSG, threonine, lysine, and xanthan gum reached full capacity during the period[101] - The Group plans to finalize the trial run of new MSG and chemical plants in the second half of 2024[118] - The Group aims to promote sales of new MSG capacity and develop three overseas regional sales offices[118] Shareholder Actions - The company repurchased a total of 4,799,000 shares at an aggregate consideration of approximately HKD 20.0 million before expenses during the period[127] - As of June 30, 2024, the repurchased shares had been cancelled, and an additional 1,000,000 shares were repurchased in July 2024 for approximately HKD 4.3 million before expenses[128]

Investment Rating - The report maintains an **OUTPERFORM** rating for Fufeng Group (546 HK) with a target price of HK$6.51 [2][9] Core Views - Fufeng Group's net profit in 2023 decreased by **18.57% YoY** to RMB 3.144 billion, primarily due to reduced gross profit in the food additives, animal nutrition, and other segments [2][6] - The company achieved a **1.94% YoY increase** in main business revenue to RMB 28.007 billion, while gross profit declined by **13.38%** to RMB 6.247 billion [2][6] - Fufeng Group plans to distribute a total cash dividend of approximately RMB 1.342 billion, with a dividend payout ratio of **42.68%** and a dividend yield of **13.39%** [2][6] Business Segment Analysis - **Food Additives Segment**: Revenue increased by **1.5% YoY** to RMB 13.495 billion, driven by stable MSG revenue and increased starch sweetener contributions, but gross margin declined by **3.5 pct** to **16%** [7] - **Animal Nutrition Segment**: Revenue decreased by **7.1% YoY** to RMB 8.901 billion, with gross margin dropping by **10.8 pct** to **17.1%**, mainly due to price declines in 98% and 70% lysine [7] - **High-Grade Amino Acid Segment**: Revenue surged by **64.2% YoY** to RMB 1.973 billion, with gross margin increasing by **7.6 pct** to **39.6%**, driven by new product launches and improved customer portfolio [7] - **Colloid Segment**: Revenue grew by **26.3% YoY** to RMB 2.828 billion, with gross margin rising by **4.5 pct** to **59.1%**, supported by increased demand for xanthan gum [7] Domestic and Overseas Expansion - Domestically, Fufeng Group's new MSG production capacity is in trial operation, with further capacity additions expected in 2024 to optimize cost advantages and consolidate market leadership [8] - Overseas, the company is conducting feasibility studies in the US and Eastern Europe to establish production bases for threonine and lysine, aiming to enhance efficiency by sourcing local raw materials and selling locally [8] - The company has successfully set up regional marketing centers in Vietnam, the US, and the Netherlands to better serve overseas customers [8] Financial Forecasts - Revenue is expected to grow by **5% YoY** in 2024 to RMB 29.496 billion, with further growth of **8%** and **9%** in 2025 and 2026, respectively [4] - Net profit is projected to decline by **3% YoY** in 2024 to RMB 3.061 billion, followed by growth of **10%** and **11%** in 2025 and 2026, respectively [4] - EPS is forecasted at RMB 1.21, 1.32, and 1.47 for 2024, 2025, and 2026, respectively [4]

Financial Performance - The Group's turnover for 2023 was approximately RMB 28.0 billion, with a net profit of RMB 3.1 billion, demonstrating resilience despite challenging market conditions[5]. - In 2023, the profit attributable to shareholders decreased by 18.6% to approximately RMB3,144.1 million compared to 2022[11]. - The Group's revenue growth was primarily driven by increases in food additives, high-end amino acids, and colloid segments[10]. - Revenue from sales of goods amounted to RMB 28,007 million for the year ended December 31, 2023[175]. - Revenue for the year ended December 31, 2023, increased to RMB 28,006,875, up from RMB 27,474,639 in 2022, representing a growth of 1.9%[185]. - Gross profit decreased to RMB 6,247,385 in 2023 from RMB 7,212,467 in 2022, a decline of 13.4%[185]. - Operating profit fell to RMB 3,699,473 in 2023, down 29.5% from RMB 5,250,746 in 2022[185]. - Profit attributable to shareholders for the year was RMB 3,144,124, compared to RMB 3,861,078 in 2022, a decrease of 18.5%[187]. - Basic earnings per share decreased to 124.02 cents in 2023 from 152.34 cents in 2022, a decline of 18.6%[185]. Strategic Initiatives - The Group's strategic mission for 2023 includes the "Dual High-quality Objectives," focusing on internationalization and high-quality operation of existing production capacities[5]. - The construction of a new chemical plant is in the final stage, and new MSG capacity is in trial run, expected to enhance cost advantages and market leadership in MSG by 2024[5]. - Three regional sales offices have been successfully launched in Vietnam, the U.S., and the Netherlands to better serve overseas customers[5]. - Feasibility studies are being conducted for two overseas production bases in the U.S. and Eastern Europe, targeting local production of animal nutrition products[6]. - The Group aims to achieve full operational status for the new MSG and chemical plant, strengthening market leadership and maintaining a rational competitive environment[6]. - The Group plans to confirm site locations in the U.S. and Eastern Europe in 2024 as part of its internationalization strategy[59]. Cost and Pricing Dynamics - The price of xanthan gum reached a historical high of over RMB40,000 per tonne in the first half of 2023, but dropped to approximately RMB30,000 per tonne by November 2023[10]. - The price of 98% lysine was RMB9,410 per tonne in 2023, representing a decrease of 13.3% compared to 2022[10]. - The price of 70% lysine was RMB5,810 per tonne in 2023, representing a drop of 11.2% compared to 2022[10]. - The overall supply of threonine increased in 2023, with the price being RMB10,740 per tonne[10]. - Average selling price of MSG decreased by approximately 6.9% to RMB8,006 per tonne in 2023, while sales volume increased by approximately 3.0% to 1,291,309 tonnes[22]. - Revenue of threonine dropped by 14.1% to approximately RMB2,121.0 million in 2023, compared to 2022[26]. Expenses and Financial Management - Selling and marketing expenses increased by 2.7% and administrative expenses increased by 14.1% compared to 2022[15]. - Finance income increased by 228.0% to approximately RMB330.5 million in 2023, compared to 2022[16]. - Finance costs decreased by 63.4% to approximately RMB179.5 million in 2023, compared to 2022[16]. - Depreciation expense was approximately RMB1,116.1 million, a decrease of RMB36.5 million, or 3.2%, compared to 2022[41]. - The Group reported a net cash inflow of approximately RMB1,704.9 million from operating activities in 2023, down from RMB3,600.1 million in 2022[50]. - Total dividends for the Year, including interim dividends, reached RMB1,337.6 million, with a per share dividend of RMB52.9 cents[42]. Corporate Governance - The Board comprises three executive Directors and three Independent non-executive Directors, ensuring a balanced governance structure[75]. - The Chief Executive Officer is responsible for daily operations and implementing Board decisions[78]. - Independent non-executive Directors represent over one-third of the Board, maintaining a proper balance of power[78]. - The Company has complied with the Corporate Governance Code throughout the year[74]. - The Company held four regular Board meetings during the Year, with attendance rates for Directors ranging from 80% to 100%[90]. - The Company encourages Directors and senior executives to enroll in professional development courses related to corporate governance practices[81]. Environmental, Social, and Governance (ESG) Initiatives - Fufeng Group was recognized as "Aon's 2023 China Best ESG Employer" for its significant achievements in ESG practices[70]. - The company is committed to integrating ESG management with corporate strategy and operations to pursue sustainable development[69]. - Cumulative resources invested in public welfare reached RMB 2,068,354[72]. - The Group established the ESG Committee on August 31, 2021, to promote environmental, social, and governance initiatives, comprising two executive directors and three independent non-executive directors[118]. Shareholder Relations - The Group aims to maximize profits and distribute dividends to shareholders, with key performance indicators focused on profits attributable to shareholders[133]. - The Group maintains good relationships with suppliers and customers, with no significant disputes reported during the year[135]. - The Company recognizes the importance of effective communication with shareholders and has established a communication policy to ensure timely access to relevant information[119]. - The Company conducted regular briefings and meetings with institutional investors to provide up-to-date information about its development[124]. Share Repurchase and Capital Management - The Group repurchased a total of 11,742,000 shares at an aggregate consideration of approximately HKD 48.3 million during the year[61]. - Subsequent to December 31, 2023, the Group repurchased an additional 4,799,000 shares for approximately HKD 20.0 million[62]. - The highest and lowest prices per share during the repurchase in November were HKD 4.20 and HKD 3.84, respectively, totaling HKD 25.1 million[168]. - The company has sufficient public float to comply with listing rules as of the report date[164]. Risk Management - The Company has established a Risk Management Manual and a risk management strategy to enhance management and risk prevention capabilities[103]. - The Risk Management process includes risk identification, handling, monitoring, and reporting to ensure effective risk management[107]. - The annual risk assessment identified key risks and their responsive mitigating controls, which were documented and reported to the Board[108].