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].

Investment Rating - The report maintains an "Accumulate" rating for the company [5][7]. Core Insights - Overall revenue growth has slowed, while high-end amino acid revenue growth has significantly increased. In 2023, the company's revenue was 28.01 billion yuan, a year-on-year increase of 1.9%, with a decline in growth rate of 25.6 percentage points. The food additives segment saw a revenue increase of 1.5% to 13.50 billion yuan, while the animal nutrition segment's revenue decreased by 7.1% to 8.90 billion yuan. The high-end amino acids segment experienced a remarkable growth of 64.2% to 1.97 billion yuan, with a growth rate increase of 79.4 percentage points [6][7]. Financial Performance Summary - Revenue and Profit Forecasts: - The company is expected to generate revenues of 28.44 billion yuan, 29.89 billion yuan, and 31.12 billion yuan for 2024, 2025, and 2026, respectively, representing year-on-year growth rates of 1.6%, 5.1%, and 4.1% [6][9]. - The forecasted net profit attributable to shareholders is 3.00 billion yuan, 3.33 billion yuan, and 3.70 billion yuan for the same years, with year-on-year changes of -4.7%, +11.2%, and +11.1% [6][9]. - Gross Margin Analysis: - The overall gross profit decreased by 13.4% to 6.25 billion yuan in 2023, with a gross margin of 22.3%, down 3.9 percentage points year-on-year. The gross margins for the food additives, animal nutrition, and other segments decreased to 16.0%, 17.1%, and 13.0%, respectively [7][9]. - Segment Performance: - The high-end amino acids and colloids segments saw gross margin improvements, reaching 39.6% and 59.1%, respectively, due to reduced contributions from lower-margin products in other segments [7][9].

Financial Performance - The Group's revenue increased by 1.9% to approximately RMB 28.0 billion in 2023 compared to 2022, driven by higher contributions from food additives, high-end amino acids, and colloid segments [2]. - Overall gross profit decreased by 13.4% to approximately RMB 6.2 billion in 2023, primarily due to reduced gross profit from food additives, animal nutrition, and other segments [2]. - Profit attributable to shareholders amounted to approximately RMB 3.1 billion, representing a decrease of 18.6% compared to 2022 [2]. - Earnings per share (Basic) was RMB 124.02 cents in 2023, down from RMB 152.34 cents in 2022 [2]. - Return on equity was 18.1% in 2023, compared to 24.9% in 2022 [2]. - The Group's profit before income tax expense for 2023 was RMB 3,850,245, a decrease from RMB 4,860,309 in 2022 [55]. - The total current income tax expense for 2023 was RMB 672,690,000, a decrease of 21.6% from RMB 858,579,000 in 2022 [49]. - Basic earnings per share profit attributable to shareholders was RMB 3,144,124,000 in 2023, down from RMB 3,861,078,000 in 2022, indicating a decrease of about 18.6% [63]. - Diluted earnings per share attributable to shareholders decreased to RMB 123.99 cents in 2023 from RMB 152.30 cents in 2022, representing a decline of approximately 18.5% [61]. Dividends - The Board proposed final dividends of HK 35.0 cents per share, resulting in a full-year dividend of HK 58.0 cents per share, with a payout ratio of 42.5% [2]. - The interim dividend paid in 2023 was RMB 534,954,000, a decrease from RMB 810,067,000 in 2022, reflecting a reduction of approximately 33.9% [69]. - The final dividends paid in 2023 amounted to RMB 748,943,000, compared to RMB 253,301,000 in 2022, representing an increase of approximately 195.5% [69]. - The proposed final dividend for 2024 is RMB 504,494,000, down from RMB 643,789,000 in 2022, which is a decrease of about 21.6% [70]. - The special final dividend proposed for 2024 is RMB 160,521,000, compared to RMB 91,018,000 in 2022, representing an increase of approximately 76.5% [70]. - The total dividends for 2023 were RMB 1,337,558,000, down from RMB 1,544,874,000 in 2022, indicating a decrease of approximately 13.4% [69]. Assets and Liabilities - Total assets increased to RMB 32.6 billion in 2023, up from RMB 26.4 billion in 2022 [9]. - Non-current assets rose to RMB 12.8 billion in 2023, compared to RMB 10.5 billion in 2022 [9]. - Current assets totaled RMB 19.7 billion in 2023, an increase from RMB 15.9 billion in 2022 [9]. - Total liabilities increased to RMB 15,236,673, up 39.5% from RMB 10,895,000 in 2022 [10]. - Current liabilities rose to RMB 14,044,560, a 49.5% increase compared to RMB 9,387,995 in 2022 [10]. - Non-current liabilities decreased to RMB 1,192,113, down 20.9% from RMB 1,507,005 in 2022 [10]. - Total equity and liabilities reached RMB 32,560,887, up 23.4% from RMB 26,388,624 in 2022 [10]. Revenue Breakdown - Total revenue for 2023 reached RMB 28,006,875,000, an increase from RMB 27,474,639,000 in 2022, representing a growth of approximately 1.9% [29]. - Revenue from external customers in the PRC amounted to RMB 20,482,261,000 in 2023, up from RMB 19,517,420,000 in 2022, indicating a growth of about 4.9% [28]. - Revenue from external customers overseas decreased to RMB 7,524,614,000 in 2023 from RMB 7,957,219,000 in 2022, reflecting a decline of approximately 5.4% [28]. - The food additives segment generated revenue of RMB 13,495,002,000 in 2023, compared to RMB 13,300,548,000 in 2022, marking an increase of about 1.5% [26]. - The animal nutrition segment reported revenue of RMB 8,901,002,000 in 2023, down from RMB 9,581,198,000 in 2022, a decrease of approximately 7.1% [26]. - High-end amino acid products revenue increased significantly to RMB 1,972,812,000 in 2023 from RMB 1,201,208,000 in 2022, representing a growth of about 64% [26]. Cost and Expenses - Gross profit for the group in 2023 was RMB 6,247,385,000, compared to RMB 7,212,467,000 in 2022, indicating a decline of approximately 13.4% [27]. - Selling and marketing expenses increased by approximately RMB 47.6 million, or 2.7%, in the Year [145]. - Administrative expenses rose by approximately RMB 148.5 million, or 14.1%, due to increased employee benefits and impairment charges [146]. Cash Flow and Financing - The net cash inflow from operating activities for the year was approximately RMB 1,704.9 million, a decrease of 52.6% compared to RMB 3,600.1 million in 2022 [157]. - The Group's cash and bank balances reached approximately RMB 10,880.2 million as of December 31, 2023, up from RMB 7,639.5 million in 2022, representing an increase of 42.9% [157]. - The Group's total bank borrowings amounted to approximately RMB 9,724.5 million, an increase of 63.1% from RMB 5,953.1 million in 2022 [157]. - The weighted average effective interest rate on borrowings decreased to 2.10% in 2023 from 2.81% in 2022 [88]. Market and Economic Conditions - The price of 98% lysine was RMB9,410 per tonne in 2023, representing a drop of 13.3% compared to 2022 [114]. - The price of 70% lysine was RMB5,810 per tonne in 2023, reflecting a decrease of 11.2% compared to 2022 [114]. - China's corn production in 2023 was approximately 288.8 million tonnes, an increase of 4.2% from 2022 [105]. - The forecast for global economic growth in 2024 is projected at 3.1%, with China targeting around 5% growth [163]. Strategic Initiatives - The Group aims to confirm site locations in the U.S. and Eastern Europe in 2024 as part of its internationalization plan [165]. - The Group plans to further enhance its production technology and improve sales and marketing strategies [165].

Financial Performance - Fufeng Group reported a turnover of RMB 28,000 million for the first half of 2023, a significant increase compared to RMB 24,000 million in the same period of 2022, representing a growth of approximately 16.67%[4] - The profit attributable to shareholders for the first half of 2023 was RMB 4,000 million, up from RMB 3,500 million in the first half of 2022, indicating a growth of about 14.29%[4] - The Group's revenue increased by 5.0% to approximately RMB13,580.1 million in the Period, driven by higher contributions from food additives, colloid, and high-end amino acid segments[8] - Overall gross profit decreased by 17.4% to approximately RMB2,956.8 million, primarily due to declines in the gross profit of food additives and animal nutrition segments[8] - Profit attributable to shareholders decreased by 24.1% to approximately RMB1,537.9 million in the Period[8] - The company's revenue for the six months ended June 30, 2023, was RMB 13,580,093, an increase from RMB 12,930,797 in the same period of 2022, reflecting a growth of approximately 5.02%[72] - Gross profit for the same period was RMB 2,956,760, down from RMB 3,580,620 in 2022, indicating a decrease of approximately 17.38%[72] - Operating profit decreased to RMB 1,731,961 from RMB 2,721,900 year-on-year, representing a decline of approximately 36.5%[72] - Profit for the half-year decreased to RMB 1,537,904, down 24.1% from RMB 2,026,006 in 2022[74] - Total comprehensive income attributable to shareholders for the half-year was RMB 1,535,044, a decline of 24.2% compared to RMB 2,026,006 in 2022[74] Segment Performance - Revenue from the food additives segment increased by 8.1% to approximately RMB6,558.5 million, mainly due to stable contributions from MSG and increased revenue from starch sweeteners[15] - Gross profit from the food additives segment decreased by 23.5% to approximately RMB971.8 million, with a gross profit margin of 14.8%, down 6.1 percentage points from the Corresponding Period[15] - Revenue from the animal nutrition segment dropped by 14.0% to approximately RMB4,090.7 million, attributed to increased competition and oversupply in the market[18] - Gross profit from the animal nutrition segment decreased by 57.5% to approximately RMB594.5 million, with a gross profit margin of 14.5%, down 14.9 percentage points from the Corresponding Period[19] - Revenue of the high-end amino acid segment increased by 54.7% to approximately RMB827.4 million, driven by increased sales volume[22] - Gross profit of the high-end amino acid segment rose by 40.2% to approximately RMB298.8 million, with a gross profit margin of 36.1%, down 3.8 percentage points[22] - Colloid segment revenue increased by 73.6% to approximately RMB1,632.3 million, primarily due to higher sales volume and ASP of xanthan gum, which was RMB40,864 per tonne, up 44.2%[24] - Gross profit of the colloid segment surged by 109.8% to approximately RMB997.4 million, with a gross profit margin of 61.1%, up 10.5 percentage points[24] Market Conditions - The average selling price (ASP) of MSG in the first quarter of 2023 was approximately RMB 9,435 per tonne, while it dropped to RMB 8,667 per tonne by the end of the second quarter due to increased supply and weak demand[5] - The ASP of threonine and lysine increased in the second quarter of 2023 due to production inspections and maintenance by some suppliers, which limited market supply[6] - China's GDP growth was recorded at 4.5% in Q1 2023 and 6.3% in Q2 2023, averaging 5.5% for the first half of the year, although it was lower than expected[5] - The International Monetary Fund forecasts China's GDP growth at 5.2% for 2023, reflecting ongoing economic recovery challenges[5] - Corn prices fluctuated between RMB 2,636 to RMB 2,816 per tonne during the period, with supply at approximately 188 million tonnes and demand at 116 million tonnes[5] - Coal supply in China increased by 4.4% to approximately 2.3 billion tonnes, while coal imports surged by 93% to around 222 million tonnes during the same period[5] Financial Position and Liquidity - As of June 30, 2023, the Group's total assets amounted to approximately RMB26,888.1 million, an increase from RMB26,388.6 million as of December 31, 2022[38] - The total debts of the Group were approximately RMB5,971.8 million as of June 30, 2023, down from RMB6,026.7 million as of December 31, 2022, resulting in a gearing ratio of approximately 22.2%[38] - The Group had a net cash inflow of approximately RMB1,332.0 million from operating activities during the Period, compared to RMB1,149.7 million in the corresponding period[37] - The Group's net unrestricted cash after short-term bank borrowings was approximately RMB1,934.3 million as of June 30, 2023, up from RMB1,639.5 million as of December 31, 2022[37] - The Group's total cash and bank balances were approximately RMB7,433.2 million as of June 30, 2023, down from RMB7,639.5 million as of December 31, 2022[37] - The Group maintained a healthy liquidity position throughout the Period, supported by cash generated from operations and bank borrowings[37] - The Group's current ratio was 1.79 times, an increase from 1.69 times as of December 31, 2022[37] Investments and Expansion Plans - The Group plans to expand MSG capacity in China by adding 400,000 tonnes at the Hulunbeier Base, expected to launch in Q4 2023[45] - The Group is conducting feasibility studies for establishing production bases in the U.S. and Europe despite delays in the U.S. project[45] - The Group has established three regional marketing centers in the U.S., Netherlands, and Vietnam to serve overseas customers directly[45] Employee and Governance - As of June 30, 2023, the Group employed approximately 16,500 employees[48] - The annual remuneration for Executive Directors was increased effective April 1, 2023, with Mr. Li Xuechun receiving RMB1,428,000[51] - The company has complied with the Corporate Governance Code during the reporting period, with all directors attending the annual general meeting except one[54] Financial Risks and Management - Financial risks faced by the Group include market risk, credit risk, and liquidity risk, with no material changes in risk management policies since the end of 2022[103] - Credit risk is managed on a Group basis, with bank deposits held in reputable financial institutions considered to have low credit risk[105] - The Group's activities expose it to various financial risks, including foreign exchange risk and interest rate risk[107] Trade Receivables and Impairment - The gross carrying amount of trade receivables as of June 30, 2023, was RMB 1,067,800,000, compared to RMB 1,094,634,000 as of December 31, 2022[116] - The provision for impairment loss allowances for trade receivables was RMB 33,637,000 for the six months ended June 30, 2023[119] - The expected loss rates for trade receivables were 4.09% for 3 months, 29.14% for 3 to 12 months, and 99.12% for over 12 months as of June 30, 2023[116] - The opening loss allowance for trade receivables was RMB 50,000,000 as of January 1, 2022, and remained unchanged at RMB 50,000,000 as of December 31, 2022, and June 30, 2023[125] Accounting Policies and Standards - The Group has adopted new accounting standards effective from January 1, 2023, including HKFRS 17 and amendments to HKAS 12, impacting deferred tax recognition[90] - The Group's interim financial statements for the six months ended June 30, 2023, reflect significant accounting policies and amendments adopted, including deferred tax assets and liabilities recognition[94] - The cumulative effect of recognizing adjustments as of December 31, 2022, was not material, with no adjustments made to beginning retained earnings[95]

Financial Performance - The Group's revenue increased by 5.0% to approximately RMB 13,580.1 million for the six months ended June 30, 2023, compared to the corresponding period, driven by higher contributions from food additives, colloid, and high-end amino acid segments[3]. - Overall gross profit decreased by 17.4% to approximately RMB 2,956.8 million during the same period, primarily due to declines in the gross profit of food additives and animal nutrition segments[3]. - Profit attributable to shareholders decreased by 24.1% to approximately RMB 1,537.9 million for the period[3]. - Basic and diluted earnings per share were RMB 60.70 cents and RMB 60.68 cents, respectively, compared to RMB 79.96 cents for the corresponding period[3]. - Return on equity for the period was 18.9%, down from 28.0% in the corresponding period[3]. - Operating profit for the period was RMB 1,731.9 million, a decrease from RMB 2,721.9 million in the previous period[7]. - Finance income increased to RMB 135.3 million, while finance costs decreased to RMB 109.7 million, resulting in net finance income of RMB 25.6 million[7]. Dividends - An interim dividend of HK 23.0 cents per share was declared, with a dividend payout ratio of 35%[3]. - The interim dividend proposed on August 30, 2023, is HKD583,392,000 (equivalent to RMB534,953,000), representing HKD23.0 cents per share, a decrease from HKD32.0 cents per share in the corresponding period[62]. Assets and Liabilities - Total assets as of June 30, 2023, amounted to RMB 26,888.1 million, compared to RMB 26,388.6 million at the end of 2022[11]. - Total liabilities decreased from RMB 10,895,000,000 as of December 31, 2022, to RMB 10,593,691,000 as of June 30, 2023, representing a reduction of approximately 2.8%[12]. - Total equity increased from RMB 15,493,624,000 as of December 31, 2022, to RMB 16,294,399,000 as of June 30, 2023, reflecting a growth of about 5.2%[12]. - Current liabilities decreased from RMB 9,387,995,000 to RMB 8,800,393,000, a decline of approximately 6.2%[12]. - Non-current liabilities increased from RMB 1,507,005,000 to RMB 1,793,298,000, an increase of about 18.9%[12]. Revenue Segmentation - Revenue from the food additives segment increased by 8.1% to approximately RMB 6,558.5 million, mainly due to stable contributions from MSG and increased revenue from starch sweeteners[73]. - Revenue from the animal nutrition segment dropped by 14.0% to approximately RMB 4,090.7 million, influenced by previous high demand during supply chain disruptions[75]. - Revenue from threonine dropped by 36.0% to approximately RMB 884.6 million, with a decrease in average selling price (ASP) by 20.2%[80]. - Revenue from lysine decreased by 11.2% to approximately RMB 907.6 million, despite a sales volume increase of approximately 16.5%[80]. - Revenue of the high-end amino acid segment increased by 54.7% to approximately RMB 827.4 million, driven by increased sales volume[81]. - Revenue of the colloid segment increased by 73.6% to approximately RMB 1,632.3 million, primarily due to increased revenue from xanthan gum[84]. Cost and Profit Margins - Gross profit from the food additives segment decreased by 23.5% to approximately RMB 971.8 million, with a gross profit margin of 14.8%, down 6.1 percentage points[73]. - Gross profit from the animal nutrition segment decreased by 57.5% to approximately RMB 594.5 million, with a gross profit margin of 14.5%, down 14.9 percentage points[76]. - Gross profit of the high-end amino acid segment rose by 40.2% to approximately RMB 298.8 million, with a gross profit margin of 36.1%, a decrease of 3.8 percentage points[81]. - Gross profit of the colloid segment surged by 109.8% to approximately RMB 997.4 million, with a gross profit margin of 61.1%, an increase of 10.5 percentage points[85]. - Gross profit from other products fell by 58.0% to approximately RMB 94.2 million, with a gross profit margin of 20.0%, a decrease of 15.2 percentage points[86]. Cash Flow and Financing - The Group reported a net cash inflow from operating activities of approximately RMB 1,332.0 million, compared to RMB 1,149.7 million in the corresponding period[107]. - As of June 30, 2023, the Group's net unrestricted cash after short-term bank borrowings was approximately RMB 1,934.3 million, an increase from RMB 1,639.5 million at the end of 2022[107]. - The Group's bank borrowings included RMB 948,000 in unsecured loans and RMB 880,000 in secured loans as of June 30, 2023[54]. - The Group's total current income tax in the PRC decreased to RMB 205,691,000 from RMB 332,980,000 in the previous year, reflecting a reduction in taxable profits[42]. Market Conditions - China's GDP growth was recorded at 4.5% in Q1 2023 and 6.3% in Q2 2023, averaging 5.5% for the first half of the year, lower than the expected 5.2% for 2023[63]. - Corn prices fluctuated between RMB2,636 to RMB2,816 per tonne, with supply and demand in China at approximately 188 million tonnes and 116 million tonnes respectively[63]. - Coal supply in China increased by 4.4% to approximately 2.3 billion tonnes, while coal imports surged by 93% to approximately 222 million tonnes[63]. Corporate Governance - The Company has complied with the Corporate Governance Code except for certain exceptions noted during the reporting period[118]. - The Company has adopted the Model Code for securities transactions by Directors and confirmed compliance during the reporting period[120]. - The Group's unaudited interim condensed consolidated financial statements were reviewed by the Audit Committee[118].

Stock Option Plan - The company granted 2,000,000 stock options under the new stock option plan, representing approximately 0.08% of the total issued shares as of December 31, 2022[2]. - The total number of stock options available for grant under the new stock option plan increased from 247,473,403 shares on January 1, 2022, to 250,473,403 shares by December 31, 2022[4]. - The plan's authorization limit allows the company to issue up to 254,673,403 shares, equivalent to 10% of the total issued shares at the time of the plan's adoption[3]. - No stock options were cancelled during the fiscal year ending December 31, 2022[5]. - The exercise price for the stock options granted on July 4, 2022, was set at HKD 4.96[6]. - The vesting schedule for the stock options allows for a maximum of 25% to be exercisable starting from July 4, 2024, with full vesting by July 4, 2027[3]. - The closing price of the shares on the day prior to the grant of the stock options was HKD 5.03[3]. - The total number of stock options granted and unexercised as of December 31, 2022, was 4,200,000[6]. - The stock option plan was initially adopted at the annual general meeting held on May 12, 2017[4]. - The company aims to align the interests of its key employees with its long-term performance through the stock option plan[3]. - The stock option plan post-IPO has a vesting schedule of up to 5 years, with a maximum of 25% vesting per tranche[7]. - The first tranche vests after the second anniversary of the grant date, with subsequent tranches vesting on the third, fourth, and fifth anniversaries[7].

Financial Performance - The Group achieved a revenue increase of 27.6% to approximately RMB 27.5 billion and a net profit increase of 201.5% to RMB 3.9 billion in 2022[4]. - Gross profit margin improved by 8.2 percentage points to 26.3%[4]. - Profit attributable to shareholders surged by 201.5% to approximately RMB 3.86 billion in 2022, up from RMB 1.28 billion in 2021[18]. - Revenue for the year ended December 31, 2022, was RMB 27,474,639, an increase of 27.5% from RMB 21,539,841 in 2021[178]. - Gross profit for 2022 was RMB 7,212,467, representing a gross margin of 26.2%, compared to RMB 3,905,276 in 2021[178]. - Operating profit for 2022 was RMB 5,250,746, a significant increase from RMB 1,580,357 in 2021[179]. - The company reported a profit for the year of RMB 3,861,078, compared to a loss of RMB 1,280,640 in the previous year[192]. Revenue Breakdown - The Group's key business segments, including food additives, animal nutrition, and colloid, saw significant revenue increases during the year[4]. - Revenue from the food additives segment was approximately RMB 13,300.5 million, an increase of 28.0% compared to 2021[28]. - Revenue from the animal nutrition segment was approximately RMB 9,581.2 million, a 25.7% increase from 2021[28]. - Revenue from the colloid segment was approximately RMB 2,238.7 million, an increase of 114.7% compared to 2021[30]. - Revenue from threonine was approximately RMB 2,469.6 million, a 3.1% increase from 2021[29]. - Revenue from the high-end amino acid segment was approximately RMB 1,201.2 million, a decrease of 15.1% compared to 2021[29]. Cost and Expenses - Selling and marketing expenses increased by 25.4%, while administrative expenses rose by 10.9% compared to 2021[21]. - Finance costs increased significantly by 183.7% to approximately RMB 489.9 million in 2022[21]. - Corn kernels accounted for approximately 56.3% of total production costs, a decrease of 2.8 percentage points from 2021[36]. - The total cost of coal increased by 35.4% during the year, accounting for 17.2% of total production costs[37]. Dividends and Shareholder Returns - The Board proposed a final dividend of HK29.0 cents and a special final dividend of HK4.1 cents per share, resulting in a full-year dividend of HK69.7 cents per share with a payout ratio of 40%[4]. - The total of paid interim dividend and proposed final and special dividends is HK69.7 cents per share, compared to HK21.5 cents in 2021[44]. - Dividends paid to shareholders increased significantly to RMB 1,079,216 in 2022 from RMB 292,653 in 2021, reflecting a substantial rise in shareholder returns[197]. Cash Flow and Liquidity - The Group achieved a net cash inflow of approximately RMB 3,600.1 million from operating activities in 2022, up from RMB 2,774.4 million in 2021[47]. - As of December 31, 2022, the Group's total cash and bank balances increased to approximately RMB 7,639.5 million, compared to RMB 4,054.8 million in 2021[47]. - The company reported a net increase in cash and cash equivalents of RMB 92,410 for the year, with total cash and cash equivalents at the end of the year amounting to RMB 7,008,116[197]. Strategic Initiatives - The Group plans to establish three strategic regional sales offices in America, Europe, and Southeast Asia to enhance internationalization efforts[4]. - The company aims to maintain high-quality internationalization and improve production capacity to consolidate its leading market position[54]. - The company is revamping a plant acquired in 2020 to produce chemicals for its products, aiming to reduce production costs[54]. ESG and Sustainability - The Group's ESG strategy was further strengthened under the leadership of the ESG Committee, emphasizing sustainable development[4]. - The emission concentration of greenhouse gases was 323.87 tCO2 e/million RMB revenue, representing a decrease of 8.16% compared to 2021[71]. - Total sewage discharge was 9,845,500 tonnes, representing a decrease of 1.28% compared to 2021[71]. - Fufeng Group received the "Green Deposit Scheme" award from Mitsubishi UFJ Financial Group, Inc. (MUFG) in 2022[71]. Governance and Compliance - The Board is responsible for promoting the Group's success through leadership and supervision[77]. - The roles of the Chairman and the Chief Executive Officer are clearly separated to ensure effective governance[78]. - The Company has arranged liability insurance for its Directors and officers, with no claims made during the year[96]. - The risk management and internal control system of the Group is considered to be effectively operated by the Board[97]. Employee Engagement and Training - As of December 31, 2022, the company employed approximately 15,100 employees[58]. - Total number of employees is 15,099, with 90.7% (13,700) having received training[72]. - Employees accumulated a total of 550,866 training hours[72]. Market Conditions and Economic Outlook - China's GDP growth rate was reported at 3.0% year-on-year in 2022, amidst global economic recovery challenges[9]. - Economic growth in Mainland China is projected to be approximately 5.0% for 2023, an increase from 3.0% in 2022[53]. - The International Monetary Fund (IMF) forecasts global economic growth to be 2.9% for 2023, down from 3.2% in 2022[53].