Core Viewpoint - The corn starch industry in China is a crucial pillar of the agricultural product deep processing sector, exhibiting a mature supply-demand system with a balanced state in 2024, where production is projected to reach 37.99 million tons and apparent demand at 37.97 million tons, indicating a tight balance overall [1][13]. Group 1: Industry Overview - The corn starch industry has established a stable supply-demand structure, with production and demand closely aligned, reflecting a trend of "stable total volume and optimized structure" [1][13]. - The industry is transitioning from traditional scale expansion to high-quality development, with an increasing proportion of high-value-added products, demonstrating resilience [1][13]. - The corn starch is derived from corn kernels through various processes and is categorized into three types: regular corn starch, modified starch, and specialty corn starch, widely used in food processing, pharmaceuticals, textiles, and biodegradable materials [2][4]. Group 2: Policy Support - Recent national policies have significantly supported the corn starch industry, emphasizing green manufacturing and high-end product development, with specific encouragement for bio-based products and functional food additives [4]. - Local governments are also promoting the development of the corn starch deep processing industry, aiming for a stable planting area and a substantial industry scale by 2027 [4]. Group 3: Industry Chain - The corn starch industry in China features a complete industrial chain with a "dispersed upstream, concentrated midstream, and diversified downstream" structure [6]. - The midstream processing segment is highly concentrated, with key regions like Shandong and Hebei forming industrial clusters, while downstream applications are diversifying into traditional and emerging sectors [6]. Group 4: Market Dynamics - The corn production in China is vital, with a total output exceeding 294.92 million tons in 2024, accounting for over 40% of the total grain production, supported by increased planting area and yield [9]. - The demand for corn starch is robust across various sectors, with the food industry being the largest consumer, followed by starch sugar, paper, pharmaceuticals, and chemicals [11]. Group 5: Competitive Landscape - The competitive landscape of the corn starch industry is characterized by a concentration of leading firms, with the top five companies holding approximately 45% market share, while smaller firms focus on niche markets [19]. - The industry is evolving towards a "technology-driven, chain collaboration, and scenario-focused" competitive model, with leading companies integrating their operations from corn to starch to bio-based materials [19]. Group 6: Future Trends - The corn starch industry is undergoing a transformation driven by technological innovation, with advancements in smart manufacturing and green production methods [21]. - Market demand is shifting towards high-end and diversified applications, particularly in biodegradable materials and health-oriented products, with significant growth expected in these areas [22][23]. - The industry is also seeing increased integration and globalization, with leading firms expanding their operations and establishing a presence in international markets [24].

Company Overview - 阜丰集团 is a leading fermentation enterprise focusing on shareholder returns, with major products including food additives (monosodium glutamate), animal nutrition (lysine, threonine, corn refined products), high-end amino acids (tryptophan, valine, leucine, isoleucine, glutamine, hyaluronic acid), and colloids (xanthan gum) [1] - The company has a production capacity of 1.33 million tons/year for monosodium glutamate by the end of 2023, projected to reach 1.65 million tons/year by the end of 2024, and potentially 1.73 million tons/year post-expansion, making it the largest globally [1] - Lysine production capacity is 380,000 tons/year (4th globally), threonine capacity is 263,000 tons/year (2nd globally), and xanthan gum capacity is 80,000 tons/year (1st globally) [1] - The company plans to establish two overseas production bases by 2024 [1] - The dividend payout ratio has been stable at 33%-35% from 2018 to 2021, with a projected ratio of 35% + 5% special dividend from 2022 to 2024, resulting in a TTM dividend yield of approximately 5.7% as of June 17, 2025 [1] Industry Insights - The monosodium glutamate industry is characterized by high concentration, with global industrial demand exceeding 3 million tons and stable growth trends [2] - China is the largest consumer of monosodium glutamate, accounting for about 70% of global consumption, with a projected apparent consumption of 2.24 million tons in 2024 and exports of 962,000 tons [2] - The industry is expected to recover from a downturn as new capacities are gradually absorbed, with the CR3 concentration reaching 85% in 2024 [2] Amino Acids Market - The demand for lysine and threonine is anticipated to grow, driven by increased feed production and amino acid usage in Asia, Africa, and Latin America [2] - The export growth rate of lysine and threonine from China to these regions is outpacing local feed production growth, indicating a shift in the amino acid industry towards domestic production [2] - The supply from overseas companies in the lysine and threonine markets is declining, with the CR3 for threonine reaching 83% and no short-term capacity expansion expected [2] Xanthan Gum Market - Xanthan gum prices have been volatile, influenced by geopolitical factors and oil price fluctuations, but are expected to stabilize in the coming years [2] Investment Recommendation - The company is positioned as a leader in the global monosodium glutamate industry, with anticipated demand growth and a recovery in industry conditions [2] - The company is also a leader in feed amino acids, benefiting from an improving industry landscape and active overseas expansion [2] - Projected net profits for 2025-2027 are estimated at 2.51 billion, 2.69 billion, and 2.96 billion respectively, leading to a "buy" rating [2]

Investment Rating - The report assigns a "Buy" rating for the company for the first time [3][9]. Core Views - The company is a leading player in the global monosodium glutamate (MSG) industry, with production capacity expected to reach 173,000 tons per year by the end of 2024, making it the largest globally [6][15]. - The demand for MSG is anticipated to grow, with the industry expected to hit a bottom and recover as new capacities are absorbed [3][9]. - The company is also a leader in feed amino acids, benefiting from an improving industry landscape and increasing demand, alongside its proactive overseas expansion efforts [3][9]. Company Overview - The company focuses on fermentation products, with a diverse product line including MSG, lysine, threonine, and xanthan gum [6][15]. - By the end of 2023, the company's MSG production capacity was 1.33 million tons per year, projected to increase to 1.65 million tons by the end of 2024 [6][15]. - The company has maintained a dividend payout ratio of 33%-35% from 2018 to 2021, with a forecasted payout ratio of 35% plus a special dividend from 2022 to 2024 [6][25]. Financial Summary - The company has shown steady growth, with a compound annual growth rate (CAGR) of 11.0% in revenue and 6.4% in net profit from 2010 to 2024 [28]. - In 2024, the company is expected to generate revenue of 27.76 billion yuan, a year-on-year decrease of 1.3%, and a net profit of 2.31 billion yuan, down 26.5% year-on-year [28][30]. - The company's gross profit margin for 2024 is projected to be 18.2%, with a net profit margin of 8.3% [34]. Industry Insights - The MSG industry is characterized by high concentration, with China accounting for approximately 70% of global consumption and 80.3% of global production capacity by 2024 [7][51]. - The demand for lysine and threonine is expected to grow, particularly in emerging markets, driven by increased feed production and the adoption of low-protein diets [59][63]. - The company is well-positioned to benefit from the ongoing shift in the amino acid industry towards domestic production and the rising demand in developing regions [63][64].

Investment Rating - The report indicates a positive outlook for the chemical industry, suggesting a new cycle may begin due to improved domestic supply and demand, increased global market share, and declining crude oil prices [3][4]. Core Viewpoints - The chemical industry is expected to enter a new cycle driven by domestic supply-demand improvements and global market share growth, despite potential short-term impacts from overseas demand [3][5]. - The report highlights that the supply side is gradually improving due to reduced fixed asset investment growth and government policies aimed at curbing excessive competition [5][10]. - On the demand side, domestic consumption is anticipated to recover steadily, supported by government initiatives to boost consumption and stabilize the economy [26][33]. - Cost factors are favorable, with significant declines in international crude oil and domestic coal prices, which will support the profitability of chemical products [42][49]. - The report recommends specific companies within various segments of the chemical industry, including refrigerants, amino acids, military and new materials, and fertilizers, indicating potential investment opportunities [5][57]. Summary by Sections Supply Side - The report notes that the chemical industry has faced profitability pressures since 2022, but the current production cycle is nearing its end, which may lead to gradual improvement in profitability as capacity is digested [11][12]. - China's global market share in chemical products has been steadily increasing, with 2023 figures showing a 43.1% share of global sales [25][20]. Demand Side - The report emphasizes that domestic demand is expected to recover, aided by government policies aimed at stimulating consumption and investment [26][33]. - The real estate sector shows signs of stabilization, which could further support demand for chemical products [33]. Cost Side - The report highlights a significant decline in crude oil prices, with Brent crude falling by 14.71% since the beginning of 2025, which is expected to positively impact the cost structure of the chemical industry [42][38]. - Domestic coal and natural gas prices have also shown a downward trend, enhancing the cost competitiveness of chemical products [49][47]. Valuation - The report indicates that the valuation of the basic chemical and petrochemical sectors is at historical lows, suggesting substantial room for recovery as market conditions improve [54][50].

Company Growth and Strategy - Fufeng has expanded its product lines to include xanthan gum, animal nutrition, and high-end amino acids, achieving top global rankings in these categories[7]. - The company has established a low-cost expansion development strategy, which has been crucial for its rapid growth and diversification[7]. - Fufeng's journey from a county business to a sizable group has spanned 25 years, reflecting significant changes and growth in the company[6]. - The MSG product line was the starting point for Fufeng, which was acquired from a bankrupt factory, highlighting the company's opportunistic approach[7]. - The company aims to become a renowned corn biochemical enterprise, driven by its successful product diversification[7]. - Fufeng's financial performance and market position have been strengthened through strategic expansions and product development[6]. - The establishment of a strong management team has been pivotal in navigating the company's growth trajectory[6]. - Fufeng's vision includes becoming a leader in biochemical fermentation products, leveraging its technical expertise[7]. - The company aims to establish itself as a multinational enterprise, with a vision of becoming "a renowned corn biochemical enterprise" in the near future[14]. Financial Performance - Fufeng's turnover for 2023 was RMB 28,007 million, showing a significant increase from RMB 27,475 million in 2022, reflecting a growth of approximately 1.9%[16]. - Profit attributable to shareholders for 2023 reached RMB 3,861 million, up from RMB 3,144 million in 2022, indicating a growth of about 22.8%[18]. - The Group's revenue slightly decreased by 0.9% to approximately RMB27,757.3 million in 2024, compared to 2023, primarily due to a decrease in the revenue of the Colloid segment[37]. - The overall gross profit decreased by 19.1% to approximately RMB5,056.8 million in 2024, mainly due to reduced gross profit contributions from the Colloid and Food Additive segments[37]. - Profit attributable to the Shareholders decreased by 26.5% to approximately RMB2,312.4 million in 2024, compared to 2023[38]. Market Trends and Projections - Fufeng's corn production in China is projected to be approximately 295.0 million tonnes in 2024, representing a 2.1% increase compared to 2023[23]. - China's total corn imports are expected to decrease sharply by about 49.2% year-on-year to only 13.64 million tonnes in 2024, indicating a strong domestic supply[23]. - The average corn price is projected to decrease from approximately RMB 2,723 per tonne in 2023 to RMB 2,250 per tonne in 2024, a decline of 17.4%[24]. - The International Monetary Fund projected global economic growth of 3.3% for 2025, while China's economic growth is estimated at about 5%[118]. Production and Capacity - The annual designed production capacity for MSG increased by 24.1% to 1,650,000 tonnes in 2024, while threonine and lysine capacities increased by 8.2% and 35.7% respectively[77]. - The capacity utilization rate for MSG, threonine, and lysine reached full capacity during the year, with 80% of the new 400,000 tonnes MSG capacity expected to be operational in the second half of 2024[78]. Sales and Revenue Breakdown - Revenue from the food additives segment increased by 6.4% to approximately RMB14,365.3 million in 2024, mainly due to increased sales volume of MSG and starch sweeteners[46]. - MSG sales volume increased by 26.8% to approximately 1,637,967 tonnes, while the average selling price (ASP) decreased by 16.1% to approximately RMB6,714 per tonne, resulting in a slight revenue increase of 6.4% to RMB10,996.6 million[50]. - Revenue from threonine increased by 18.7% to approximately RMB2,517.3 million, with an ASP of RMB9,632 per tonne, up 4.0%[52]. - Revenue from the high-end amino acid segment increased by 12.4% to approximately RMB2,217.4 million, mainly due to increased sales volume[57]. - Revenue from the colloid segment decreased by 35.8% to approximately RMB1,816.5 million, with a gross profit margin of 41.5%, down 17.6 percentage points[59]. Challenges and Adaptations - Fufeng has witnessed many ups and downs over its 25-year history, adapting to market changes and challenges[6]. - The company has faced significant challenges in its internationalization process, particularly in establishing a production base in the United States due to geopolitical tensions[10]. - Fufeng's management emphasizes the importance of overcoming societal obstacles to achieve sustainable growth for the enterprise[10]. - The Group's gross profit margin decreased to 18.2% in 2024 from 22.3% in 2023, reflecting the challenges faced in the Colloid and Food Additive segments[43]. Corporate Governance and Compliance - The Board is collectively responsible for promoting the success and interest of the Group, ensuring that no material uncertainties were found regarding the Company's ability to continue as a going concern during the Year[171]. - The roles of the Chairman and the Chief Executive Officer are clearly separated, with Mr. Li Xuechun as Chairman overseeing the Board and Mr. Li Deheng and Mr. Li Guangyu as Co-Chief Executive Officers managing daily operations[172]. - Independent non-executive Directors represent over one-third of the Board, ensuring a proper balance of power and maintaining effective control over the Group and its executive management[180]. - The Company is committed to continuous professional development for all Directors, providing training on corporate governance and updates on relevant laws and regulations[190]. - The Company has received annual confirmations of independence from all Independent non-executive Directors, affirming their independence[180]. Environmental and Social Responsibility - The company received the title of "Aon's 2024 China Best ESG Employer"[155]. - Total cumulative resources invested in public welfare reached RMB 8,821,259[161]. - Greenhouse gas emission intensity was 487.01 tCO2e/million RMB revenue[155]. - Total sewage discharge was 9,904,200 tonnes, with recycled sewage volume at 34,642,500 tonnes[155]. - Emission intensity of hazardous waste was 0.02 tonne/million RMB revenue[155].

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]