Food Additive Stock With Superior Margins at a Bargain Price
Fufeng prides itself on being one of the world’s largest manufacturers of MSG (Monosodium Glutamate) and Xanthan Gum. These substances are food additives; MSG is used to enhance food flavors, while Xanthan Gum serves as a thickener, giving food texture. The industrial-grade Xanthan Gum is also utilized in crude oil extraction. Additionally, Fufeng produces feed ingredients for animals and various other biochemical products.
MSG is the largest contributor to revenue, while Xanthan Gum has shown impressive revenue growth, with its contribution increasing from 7% to 11.9% in the first half of 2023, making it the third-largest revenue driver. This increase was largely driven by higher demand from the oil and gas sector. Corn refined products, such as corn oil, represent the second-largest revenue source.
The Group's revenue increased by 5% year-on-year to approximately RMB 13,580.1 million in the first half of 2023, primarily due to increased revenue contributions from Xanthan Gum, starch sweeteners, and high-end amino acids. However, profits declined due to lower average selling prices, which compressed margins.
Looking over a longer period, revenue has grown steadily at a compound annual growth rate (CAGR) of 19% between 2018 and 2022. This growth occurred despite the challenges of COVID-19 lockdowns in China during 2020 and 2021, and a sluggish consumption market after reopening. Thus, the Group's growth has been resilient and commendable.