Main points of investment
Lower corn costs and higher gross margins contributed to a sharp increase in net profit. Fufeng Group's results in the first half of 2017: revenue rose 12.7% year-on-year to 6.211 billion yuan; gross profit increased 3.3% year-on-year to 22.6%; net profit increased 83.35% to 643 million yuan; net profit margin increased 4.0% year-on-year to 10.3%. The substantial increase in operating performance in the current period is mainly due to the change in China's corn collection and storage policy, the continuous decline in corn grain costs, and the substantial increase in gross profit margin contributed to the substantial increase in net profit.
Diversified development of products. The company implements a diversified product development plan, and the revenue of threonine and high-grade amino acid products in the first half of this year increased by 51.6% and 44.6% respectively compared with the same period last year. From the perspective of revenue, monosodium glutamate revenue is less than 50% of the total, the company has reduced its dependence on monosodium glutamate and xanthan gum products, and played a good role in the steady development of the enterprise.
The construction of the new plant promotes the expansion of the company's capacity. At present, the first phase of the company's new plant in Qiqihar is designed to have a capacity of 200000 tons of starch sweetener and 100000 tons of threonine. The project started in the first half of this year and is scheduled to be put into trial production by the end of this year. The second phase of 200000 tons of lysine and other products is also scheduled to be put into trial production in the middle of next year. It is expected that after the completion of the new plant, the company will be able to give full play to the cooperative allocation ability of lysine, threonine and tryptophan in the market, and the company's market share of animal nutritional amino acids will be further expanded.
Our point of view: we believe that there are several bright spots in the development of the company: 1, the company has a significant cost advantage and occupies a leading position in the market; 2, the company's diversified products reduce its dependence on monosodium glutamate and xanthan gum, which plays a good role in the steady development of the enterprise; 3, the company's new factory in Qiqihar will expand the production capacity of threonine and starch sweeteners, and the market share of the products is expected to further increase. We initially forecast that the current stock price will be about 7 times the PE of the company's 2017 results, and investors are advised to pay active attention.
Risk hint: the cost of corn raw materials is rising; the income of threonine and high-grade amino acids is lower than expected.