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]
阜丰集团：2024年中报点评：生物发酵龙头，多品类蓄势待发