CICC released a research report stating that it maintains a 'outperform industry' rating on Fufeng Group (00546). Due to the downward trend in prices of products such as MSG and xanthan gum, as well as a significant decrease in the gross margin of by-products such as fertilizers, the profit forecast for 2024/25 has been lowered by 29%/27% to 2.13/2.27 billion yuan. Despite the profit forecast downgrade, considering the upward valuation of high-dividend targets, the target price has been reduced by 9% to 5.3 Hong Kong dollars. The group announced 1H24 performance: revenue of 13.37 billion yuan, a year-on-year decrease of -1.6%; net income attributable to the parent company of 1.04 billion yuan, corresponding to earnings per share of 0.41 yuan, a year-on-year decrease of -32.3%, in line with market expectations and close to the upper limit of the profit forecast range.
The report mentions that MSG prices are under pressure, xanthan gum prices have rebounded, and amino acids remain robust. 1) MSG: downstream demand is relatively stable, new production capacity on the supply side combined with the downward trend in corn prices has led to a downward pressure on MSG prices. According to Zhuochuang Information, the current market price of MSG is 7,490 yuan/ton, a decrease of 1,660 yuan/ton compared to the average price in 2023. 2) Xanthan Gum: According to Zhuochuang Information, the current quoted price for xanthan gum is 0.0295 million yuan/ton, a recovery of 0.0045 million yuan/ton from the early low point of the year. Looking ahead to 2H24, the bank expects downstream industries to return to normal procurement pace after price stabilization, potentially driving xanthan gum gross margins to remain at the current reasonable level. 3) Amino Acids: According to Boya Xun, the current quotation for lysine/threonine amino acids is 10,700/10,900 yuan/ton. The bank believes that with the decline in raw material prices such as corn, the profitability of threonine/lysine amino acids is relatively robust. After the busy season for demand in September and October, industry sentiment is expected to continue to improve.
