Fufeng Group (0546 HK): Tighten the belt one notch - BUY (Unchanged)

to summarize…

- Net profit over tripled in FY12/09A to RMB928.3m with extra fuel from skyrocketed MSG price in 4Q and 250,000 tonne cheap corn procured from government.

- MSG market is anticipated to stay in balance in 2010 with additional ~140,000 tonnes supply solely from Fufeng.

- Both Fufeng and Eppen’s expansion will test MSG market in 2011.

- New synthetic ammonia plant and production base in North East China will fortify the company’s cost advantage.

- The management targets at 40%+ domestic MSG market share. We reckon this target will be realised by 2015, accompanied by continuous market consolidation.

- Expected three-year average dividend yield at 4.37%. BUY unchanged with target price revised up to HK$7.08.

Fufeng Group - Tighten the belt one notch

Fufeng (546 HK): Soaring MSG price-BUY (unchanged)

Key points:

-MSG price surged from RMB7,719/tonne in Sep to RMB10,200 in Nov.

-Industry-wide gross margin reached 35.0%+.

-No major capacity expansion at this stage.

-Earnings revised up to reflect high MSG price.

-Target price changed from HK$4.86 to HK$5.98.

Fufeng: Soaring MSG price

Fufeng (546 HK): light of market equilibrium -BUY (unchanged)

Key points:

- 250,000 tonne corn procurement from government approved

     with potential gain of RMB57.5m in 4Q.

- Surphuric acid, ammonia and coal cost dropped in 3Q.

- MSG price driven by corn price.

- Earnings estimates penciled up 22.1% for FY12/09F.

- New target at HK$4.86.

- Fair value at HK$5.74 under new market-equilibrium scenario.

Fufeng: light of market equilibrium

Fufeng (546HK): Intact picture-BUY (unchanged)

Key points: 

Ø 1H results broadly in line.

Ø Margin widened on lower raw materials costs.

Ø Cut price to expand xanthan gum market share in 2H.

Ø More capacity expansion in plan.

Ø Potential procure of corn from government to bring down cost.

Ø Forecasts penciled up.

Ø Target unchanged at HK$4.51.

Fufeng: Intact picture

Fufeng (546HK): More margin gain on technical upgrade-BUY (unchanged)

Key points:

- Technical upgrade to reduce coal procurement cost by 30-50%.

- Gross margin anticipated to widen 7pcp to 25.0% in FY12/09F.

- Higher long-term market share based on strengthening cost advantage.

- New round of capacity expansion industry-wide is likely.More aggressive xanthan gum pricing in 2H to obtain market share.

- New target at HK$4.51.

Fufeng: More margin gain on technical upgrade