Fufeng Group (HKG:0546) Research Report By RedFile Research
Hong Kong, Sep 29, 2010 AEST (ABN Newswire) - Fufeng Group (
HKG:0546) (PINK:FFNGY) is pleased to release a research report conducted by RedFile Research:
Executive Summary
Fufeng Group is a Chinese bio-chemical company that produces and sells monosodium glutamate (MSG) for the food industry and xanthan gum (XG) for the food, cosmetics, and oil exploration industry. Fufeng is China's largest producer of MSG with a 20% global market share, and one of the largest producers of XG with a 30% global market share.
Domestic MSG consumption is expected to grow 10% annually. The driver is the rapid growth of the food service sector, which has averaged over 20% in the last two decades. This impressive growth is the result of the rising middle class which finds itself with enough disposable income to eat out and frequent restaurants.
Management aims to double MSG production to one million tonnes by 2013 and capture 60% of the XG market, as Fufeng becomes the global leader in both industries. To meet its goals, the Company plans on building new plants in low-cost regions and using its high margins to stamp out competition.
Based on our forecast, we expect diluted EPS to grow by 7.1% and 11.2% in 2010 and 2011, respectively. Using a 4-year Discounted Cash flow (DCF) model with a 7.66% discount rate and 7x FCF terminal multiple, we value Fufeng Group at HK$7.77, which reflects a 48% upside. Our valuation is supported by close regional comparables, as well as an intrinsic P/E value approach.
Business Overview
Fufeng Group is a Chinese bio-chemical company that produces and sells monosodium glutamate (MSG), xanthan gum (XG), and various related byproducts. Fufeng is China's largest producer of MSG with a 20% global market share, and one of the largest producers of XG with a global market share of 30%. Sales from the MSG segment contribute to over 90% of company revenue.
MSG is a food additive widely used in the food industry as a flavor enhancer. It is made from glutamic acid, which is usually derived from fermented sugar beet, sugar cane molasses, or corn syrup. The additive is used internationally in all types of foods, but is generally associated with Asian cuisine due to its origins. MSG is used in food including fast foods, processed foods, potato chips, snacks and bouillon cubes. Just as eating chocolate stimulates the sweet taste receptors on our tongue, eating foods seasoned with MSG stimulates the glutamate receptors, enhancing the savoury flavor of these foods. That bowl of instant noodles you survived on in college didn't taste like cardboard because of the added MSG.
XG is produced by fermenting corn sugar. It is essentially a slimy, clear gel used in a wide range of industries whenever a gel-like quality is sought. In the food industry, XG is used in products such as yogurt, sour cream, and salad dressings to provide a consistent and thick quality. In cosmetic manufacturing, XG is used in cream-based products in order to keep the individual ingredients from separating. In the oil industry, water is often used as a lubricant for oil well pumps. Companies often add XG to the water to increase its thickness and keep drill parts lubricated.
Fufeng owns three production facilities located in Shandong, Inner Mongolia, and Shaanxi. A fourth plant is under construction in Northeast China, near Inner Mongolia and expected to be completed by the middle of 2011. In addition, Fufeng has taken preliminary steps into the drug and pharmaceutical field by acquiring a pharmaceutical company (Shenhua pharmaceuticals) which is currently only at the R&D stage and not expected to contribute to group earnings.
For the complete Fufeng Group research report, please refer to the following link:
http://www.abnnewswire.net/media/en/docs/63850-Fufeng-Redfile-Sep-10-100922.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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