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Public company info - Fufeng Group Ltd. , 00546.HK
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Fufeng Group Ltd., 00546.HK - Company Profile
Chairman Li Xue Chun
Share Issued (share) 2,534,000,000
Par Currency Hong Kong Dollar
Par Value 0.1
Industry Food Additives & Flavouring
Corporate Profile Business Summary: The Group is mainly engaged in the manufacture and sell fermentationbased food additive and biochemical products and starch-based products. The Group has manufacturing plants in Shandong Province, Shaanxi Province, Inner Mongolia Autonomous Region and Xinjiang Uygur Autonomous Region of the People’s Republic of China (the “PRC”) and sells mainly to customers located in the PRC. Performance for the year: Profit attributable to the Shareholders for the year ended 31 December 2019 amounted to approximately RMB1,137.2 million, which represented an increase of 53.2% as compared with 2018. Overall revenue increased by 17.5% to approximately RMB16,170.9 million in 2019 (2018: RMB13,764.6 million). The Group’s overall gross profit increased from approximately RMB2,574.8 million in 2018 to approximately RMB3,260.6 million in 2019. Earnings per share (Basic) was RMB44.75 cents (2018: RMB72.45 cents). Business Review The Group continued to be confronted with challenges in 2019, including but not limited to a slowing domestic macroeconomic growth, the Sino-US trade tensions and the epidemic of swine flu. Despite these challenges, the Group’s Food additives segment recorded a significant improvement in its overall performance, following years of efforts in industry consolidation, as compared with 2018. Net profit increased by RMB395.0 million, or 53.2%, year-over-year (excluding the result of the one-off net gain after income tax of approximately RMB1,102.8 million from the disposal of two parcels of land in Baoji in 2018), which was primarily driven by the increase in profitability of the Group’s Food additives segment for the year ended 31 December 2019. The Group’s operating performance greatly improved in 2019 as compared with 2018, mainly attributed to: 1) the improvement in revenue and profitability of the Food additives segment, which accounted for a fairly large contribution of overall Group revenue, driven by a significant increase in MSG price despite the increasing costs of major raw materials including corn kernels and coal, and therefore had a positive impact on the Group’s overall performance; and 2) production efficiency was further improved as a result of enhancement of production technologies. Against the backdrop of a sluggish domestic economy, the Group’s Food additives segment was still able to achieve better results in terms of industry development and market competition. This is mainly due to the entry of the MSG industry into a new landscape, including 1) a new phase of centralisation of production capacity emerging after years of industry consolidation; 2) reduced level of irrational competition in terms of pricing and production volume by the Group’s competitors; and 3) leading enterprises have taken the initiative to limit excess production capacity to control excessive supply in the market. As a result, a more rational competitive environment resulted in an improvement in the selling price of the Group’s MSG products. The ASP of MSG was approximately RMB6,941 per tonne (2018: RMB6,085 per tonne), and the sales volume of MSG for the year ended 31 December 2019 increased to approximately 1,116,000 tonnes, boosting the profitability of the Food additives segment. As the leader in the industry, the Group managed to achieve stable development for its core business and also further consolidated its leading position in the market. In addition, the Group made considerable efforts in developing high-value fermentation products in order to diversify its revenue stream, enhance profitability and provide impetus for the long-term sustainable growth of the Group. The Group continued to actively strengthen the Group’s competitiveness by constantly improving the production technology to achieve better cost effectiveness and strategically utilise the production facility and capacity of each plant in order to meet market demand. The Group recognised the importance of using advanced technologies to continually improve the Group’s production efficiency and develop new products. The Group actively explored the development of amino acid products for animal nutrition, high-end amino acid products for pharmaceutical, health care and beauty, and food additives mainly as starch sweeteners, in order to improve product diversity and increase sales and penetration in the health and wellness, pharmaceutical and skincare related industries. The Group nonetheless experienced some turbulence caused by the Sino-US trade tensions. For example, the exports of xanthan gum and high-end amino acid to US were affected to some extent. The sales volume of xanthan gum reached approximately 61,000 tonnes in 2019, but recorded a decrease in ASP and thereby added pressure to the gross profit margin of the Group’s xanthan gum products in 2019. The sales volume of high-end amino acid was also affected, showing a declining trend in 2019. Animal nutrition products underwent a difficult time due to the sluggish feed industry and animal breeding industry as a result of swine flu. The sales volume and price of the Group’s threonine and lysine both failed to meet the Group’s expectations. As for Animal nutrition products, the Group expects the current weak conditions will continue for a period of time during 2020. In response to this, the Group has taken some corresponding countermeasures, allowing them to meet the demands of the Group’s customers, as well as reducing the negative impact on the Group’s profitability. These countermeasures include: 1) accepting orders that meet a set price, so as to focus on those customers that have high demand for high-end products; and 2) readjusting product mix to meet different market demands by modifying some of the Group’s production processes. The Group continues to strategically optimize the Group’s production bases. Phase II of the Longjiang Plant Project successfully commenced operation in January 2019, representing a milestone for the Group in extending its competencies across the industry value chain, and thereby improving its overall market competitiveness. Upon completion, the Group became the leading enterprise in the global market with full corn processing capabilities. Business performance analysis by major product segments instead of business segments The original business analysis of Fufeng Group Company (the “Group”) was mainly divided into two business segments, namely the amino acid segment and the xanthan gum segment. The amino acid segment includes the sales of three major categories of products, including: 1) Food additives (main products include MSG, compound seasoning, starch sweeteners, glutamic acid and com oil), 2) Animal nutrition (main products include threonine and corn refined products), and 3) High-end amino acid (main products include valine, leucine, isoleucine, glutamine, hyaluronic acid, etc.).The xanthan gum segment refers to the production and sales of colloids such as xanthan gum, welan gum and pectin. In view of the Group’s more diversified portfolio of products due to the continuous development of the Group’s businesses over the years, the Group’s internal management has continued to evolve along its major product lines and therefore considers it more informative and reflective of underlying business realities to present the Group’s business performance analysis according to the following five product segments: 1. Food additives (main products include MSG, compound seasoning, starch sweeteners, glutamic acid and corn oil), 2. Animal nutrition (main products include threonine, lysine, and corn refined products), 3. Colloid (main products include xanthan gum and gellan gum), 4. High-end amino acid (main products include valine, leucine, isoleucine, glutamine, hyaluronic acid, etc.), and 5. Other (main products include fertilisers, synthetic ammonia, pharmaceuticals, etc.). As a result, since the Group adopts a centralized management and allocation of resources to the respective product segments, management considers it more appropriate, going forward, to set out the Group’s business analysis according to the product segments as set out in note 3 of the annual results. In terms of the Food additives segment, the ASP of MSG significantly increased in 2019. The Group was able to maintain its leadership in terms of market share and sales volume by leveraging its cost advantages to adopt competitive pricing in a more price-friendly market environment in 2019. The Group recorded a significant increase in gross profit and gross profit margin of the MSG product, which positively affected the profit contribution from the MSG product during the year. Additionally, the new Longjiang Plant Phase II commenced operation at the beginning of 2019 and the annual production capacity of starch sweeteners has increased to 720,000 tonnes. The sales revenue from starch sweeteners increased to approximately RMB1,627.8 million, representing an increase of 54.7%, as compared with 2018. In terms of the Animal nutrition segment, the Group recorded a decreased contribution from the sales of threonine products due to the continuous impact of the swine flu in 2019. In terms of the Colloid segment, the xanthan gum product has stabilized since the second half of 2018 as market conditions in the oil industry recover although oil prices continued to remain at a relatively low level. The ASP of xanthan gum decreased to about RMB14,725 per tonne during 2019, representing a decrease of 5.2%, as compared with 2018. In 2019, the Group managed to maintain the annual production capacity of xanthan gum at a reasonable level of 65,000 tonnes. The Group, as the largest xanthan gum manufacturer in the world, continued to dominate the global market share during the year ended 31 December 2019. In terms of the High-end amino acid segment, revenue decreased during the year ended 31 December 2019, mainly due to sluggish economic growth and stiff market competition. For the year ended 31 December 2019, the Group’s revenue increased to approximately RMB16,170.9 million as compared with approximately RMB13,764.6 million for the year ended 31 December 2018. The increase in revenue was primarily due to the increase in the ASP and sales volume of MSG and increased revenue contribution from MSG, starch sweeteners and lysine. The Group’s overall gross profit increased from approximately RMB2,574.8 million in 2018 to approximately RMB3,260.6 million in 2019. This represents an increase of 26.6%, primarily due to the increase in the ASP and gross profit margin of MSG which is classified in the Food additives segment. Food additives segment In 2019, the ASP of MSG substantially increased by 14.1% as compared with 2018, which clearly represented a change of the MSG industry market environment. Peer competitors reduced their levels of irrational competition in terms of pricing and production volume. In addition, despite major raw material costs increasing during the year, the Group managed to reduce unit consumption and enhanced production efficiency by continuing to invest in research and development. Therefore, gross profit margin significantly increased as compared with 2018. The production volume of MSG increased by approximately 19.2% and sales volume increased by approximately 3.7% in 2019 as compared with 2018, respectively. The increase in production and sales volume of MSG was mainly due to the improved market environment, which allowed them to leverage the Group’s industry position to increase market share. This strategy not only fully utilized the cost advantages of the Group but also leveraged on the Group’s market position to maximize its profitability. The production and sales volume of starch sweeteners significantly increased by approximately 93.3% and 73.9% in 2019 as compared with 2018, respectively. The production volume increased as a result of the new production capacity of starch sweeteners (300,000 tonnes) commencing operation in the Group’s new Longjiang Plant Phase II to meet strong market demand. Animal nutrition segmentThe Group continued to witness the sustained development of the Group’s threonine product in 2019. Threonine is a type of amino acid which is used as an animal feed additive. During the year, the total sales amount of threonine was approximately RMB1,196.2 million, representing a decrease of 17.5% as compared with 2018. The Group sold about 176,000 tonnes of threonine during the year as compared with about 186,000 tonnes in 2018. However, due to the outbreak of the swine flu in China since the second half of 2018, the ASP of threonine has substantially decreased, resulting in significant decreases in gross profit contribution and gross profit margin of threonine in 2019. In addition, the new production capacity of lysine (200,000 tonnes) commenced operation in the Group’s new Longjiang Plant Phase II at the beginning of 2019. Sales of lysine, a new product, amounted to approximately RMB523.5 million in 2019 and it is classified as part of revenue in the Group’s Animal nutrition segment. Colloid segment The production volume of xanthan gum increased by 19.2% and the sales volume of xanthan gum increased by 7.5%, respectively, in 2019 as compared with 2018. The increase in production of xanthan gum was due to the stable market conditions tracking the global oil industry. The increase in sales volume of xanthan gum was due to the Group’s ability to increase market share. On the other hand, the ASP of xanthan gum decreased by 5.2% as compared with 2018, as market conditions demonstrated a lackluster but stable condition tracking the global oil industry. High-end amino acid segment The Group’s high-end amino acid products are developed using different types of cornbased biochemical products by leveraging the Group’s fermentation technology. The highend amino acid products include valine 纈氨酸, leucine 亮氨酸, isoleucine 異亮氨酸, glutamine 谷氨醯胺 and hyaluronic acid 透明質酸, etc. In 2019, sales of high-end amino acid products reached approximately RMB808.3 million, representing a decrease of 15.8% as compared with 2018. The Group’s high-end amino acid products focus on the health and wellness and pharmaceutical materials industries and generally enjoy higher profitability. The goal of the Group is to become the clear market leader by market share for several of the Group’s key amino acid products. The development and production of these products will add further diversity to the Group’s product and revenue mix. The Group also plans to extend its business scope from the production and sales of typical amino acid products for bulk trade to those of high end products. Overall, the diversity of the Group’s product portfolio allowed the Group to maintain its overall revenue growth momentum in 2019. Prospects: In early 2020, China has been hit hard by the novel coronavirus epidemic, and the Group expects the business environment to become even more challenging. In 2020, the Group will focus on the strategy of fortressing and building on the Group’s existing strengths (固本培元) by further consolidating the Group’s market leadership and reinforcing the Group’s existing competitive advantages. The Group will also continue to put more efforts on strengthening the Group’s management capability and cost reduction. Main tasks in 2020: In terms of internal management: 1. Cost control: The Group aims to achieve cost reduction in areas including production costs and repair and maintenance costs at various plants, raw material procurement costs, logistics costs (including warehouse costs), labor costs, administrative expenses and cost of sales. 2. Fixed asset investment: The Group’s fixed asset investment strategy is primarily in place in order for them to further increase the Group’s market share should the opportunity arise. As such, the Group will apply the strictest approval mechanism for any future planned fixed asset investment in order to ensure that in a challenging market. The Group aims to safeguard the Group’s financial position and also to ensure that investment returns of any future fixed assets to meet the Group’s expectations. In terms of market development and sales: 3. Increasing market share in key markets: As to the MSG exports, the Group aims to achieve breakthroughs in the exports of MSG to the Japanese and Korean markets this year; as to the animal amino acid (such as threonine and lysine), the Group strives to penetrate the European and South American markets; as to the other niche products with relatively smaller scale, such as hyaluronic acid, the Group aims to expand production capacity and develop not only the high-end markets but also the low-end and middle markets. Furthermore, the Group will also focus on cross-selling abilities of the Group’s different varieties of products, such as the bundling of feed amino acid including threonine, lysine, tryptophan, and valine. 4. Technology and research and development (R&D): In addition to rely on the Group’s own R&D, the Group will collaborate with the industry leaders in global markets and technology research and development companies, to carry out various research and development of microbial strains. The Group believe such collaboration can result in a win-win situation for them and the Group’s partners and allow them to shorten the time required for the Group’s new products to reach the market, especially the sales of some new hydrosols. In terms of production technology, the Group will further improve technical indicators and certain production efficiency indicators based on the current technologies, enhance safety and quality awareness and reduce customer complaints.

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