Fufeng Group Limited (HKG:0546) Announce an SWS Research Report - GPM Dropped Due To Rising Costs Of Raw Materials, 2010TP Cut to HK$8.48, Maintain BUY Rating
Hong Kong, Aug 20, 2010 AEST (ABN Newswire) - Fufeng Group Limited (
HKG:0546) (PINK:FFNGY) announced its 1H10 results yesterday, and they came in slightly below our expectation. The revenue was RMB2.99B (45.4% YoY growth) which is slightly higher than our forecast of RMB2.98B. The basic EPS was RMB0.277 (30% YoY growth) which is slightly lower than our forecast of RMB0.287. The GMP was 24.8% (1H09:28.1%) which is lower than our forecast of 28%. The significant drop of GPM was due to the significant price increase of raw materials, particularly corn kernels.
MSG revenue increased to RMB1.76B from RMB0.91B, representing a 94.7% YoY growth. This is due to the price hike of MSG from RMB6886/ton to RMB7489/ton (8.8% increase) and significant sales volume increase from 131,500 tons to 235,405 tons (79.1% increase) driven by strong demand for MSG in China. However, glutamic acid revenue decreased from RMB423.17M to RMB96.69M, representing a 77.2% YoY drop. This is due to the company's change of business strategy by converting most glutamic acid into MSG instead of selling to external manufacturers. We believe this new strategy has shown that the company is transforming into a consumer goods producer from an industrial goods producer. We believe the company's valuation should improve during the process. Corn refined products, starch sweeteners, corn oil and other products enjoyed fast growth, showing the strong demand for corn-processed products. Revenue from fertilized products dropped 18.5% due to weak demand in 1H10. Revenue from xanthan gum increased from RMB185.94M to RMB381.47M (105.2% YoY growth) due to an increase of sales volume from 8400 tons to 19086tons. The strong demand from the oil industry has contributed to the increase of xanthan gum sales volume.
In view of rising costs of raw material and strong demand for MSG and xanthan gum, we have changed certain assumptions on prices and utilization rates. As a result, our revenue forecast for 2010/11/12 is changed to RMB6.36B, 7.81B and 10.08B respectively (previously RMB6.13B, 8.12B and 10.49B) and basic EPS forecast for 2010/11/12 is changed to RMB0.62, 0.87 and 1.02 respectively (previous RMB0.66, 0.84 and 1.06. We also revise the 2010TP to HK$8.48 (previously HK$9.03), representing 54.77% upside potential from current price of HK$5.48. The stock is currently trading at 7.75X 2010PE which we believe is undervalued, we maintain BUY rating.
For the complete SWS Research Report on Fufeng Group, please refer to the following link below:
http://www.abnnewswire.net/media/en/docs/63557-SWS-Aug-10-100817.pdf
About Fufeng Group Limited
Fufeng Group (
HKG:0546) is the world's largest producer of MSG, xanthan gum and a major supplier for a series of bio-fermentation products. The main products of the Group are food additives, animal nutrition, colloid and high-end amino acids. In fiscal 2016, Fufeng generated sales of approximately RMB11.2 billion and profit attributable to shareholders of about RMB1.09 billion. For more information, please visit our website www.fufeng-group.com
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