Undervalued Stock
The company is a value stock to hold and is currently at a very low valuation with huge margin of safety. Its P/E is at 3.3 with PB at 0.66, dividend (TTM) at 10.2%. I expect the stock to at least have 20% upside (HK$ 3.92). Recent corona virus caused the company to drop further to 1 year low, thus providing an opportunity to enter, along with increasing RSI and higher volume.
Fufeng Group manufactures MSG (flavor enhancer), and is the largest for MSG, and is the second largest for xanthan gum in China.
Fundamental Reason for buying:
1. Stabilised industry after price war in previous years (The second largest agreed to stop having price war to improve profit margin). Also, as the cost of setting up manufacturing plant and the other facilities is high, the entry barrier is high, and preventing new competitors, especially given the nature of the industry. As the industry is stabilised, and Fufeng Group has the largest market share, I expect its economies of scale is able to give it the most advantage within the industry.
2. China is both the largest manufacturer and consumes the most MSG globally. Local people consumes much higher volume of MSG comparing to any other places globally, thus promising steady demand.
3. Price of Corn (huge chunk of raw material) is decreasing over the years, and price of MSG is slowly increasing given no price war and oligopoly structure.
Feel free to provide feedback below!
Fufeng Group manufactures MSG (flavor enhancer), and is the largest for MSG, and is the second largest for xanthan gum in China.
Fundamental Reason for buying:
1. Stabilised industry after price war in previous years (The second largest agreed to stop having price war to improve profit margin). Also, as the cost of setting up manufacturing plant and the other facilities is high, the entry barrier is high, and preventing new competitors, especially given the nature of the industry. As the industry is stabilised, and Fufeng Group has the largest market share, I expect its economies of scale is able to give it the most advantage within the industry.
2. China is both the largest manufacturer and consumes the most MSG globally. Local people consumes much higher volume of MSG comparing to any other places globally, thus promising steady demand.
3. Price of Corn (huge chunk of raw material) is decreasing over the years, and price of MSG is slowly increasing given no price war and oligopoly structure.
Feel free to provide feedback below!
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