Seeker of ‘Cash Cow’ from Afar
As one of the largest producers of corn sweeteners in China, Global Sweeteners (3889), who was listed in HK since 2007, has been concurrently operating both upstream and downstream sweetener industrial chains in Jinzhou, Changchun, Shanghai and other mainland provinces. With corn refining in upstream and sweetener production in downstream, it has achieved a production model of comprehensive integration with remarkable results. The Group also introduced cattle fattening-related sales business in late 2009, and processing business in early 2010. Mr. Kong Zhanpeng, chairman of Global Sweeteners, when receiving our interview in Liaoning Province of Jinzhou City, said the company adheres to the development of food business. While engaging in starch sugar refining and corn processing business, the proportion of cattle fattening business will get a lift to 30% of the overall business in the long-term and become the Group’s ‘Cash Cow’ to drive the future growth.
Global Sweeteners, its 52% holding company Global Bio-Chem (809) spin-off, has been focusing on upstream corn refining production including the production and sales of corn starch, corn oil, meringue powder and fiber feed, and downstream corn sweetener production including glucose syrup, barley malt syrup, high fructose syrup, crystalline dextrose as well as maltodextrin for years. It is expected the upstream and downstream capacity can reach as high as 2.22 million and 2.46 million tonnes in 2011 and 2012 respectively. In view of 2010 full-year results, the gross margin of the Group’s upstream corn refining production and downstream corn sweetener production attained 10.4% and 12.4% respectively while that of the newly developed retail business also achieved 4.8%, a gain of 3.7% year-on-year.
Kong said the gross margin of retail beef products in 2009 was about 1% and it leaped to 4.8% last year. The management is particularly concerned about effectively improving the relevant gross margin of this year on an orderly manner by production restructuring. He stressed that the company used to sell big batch of beef products directly to food processors, and now they sell to supermarkets instead. Undoubtedly, the gross margin will be perked up by this change. By all means, in regard to opening up of supermarket sales channels, the Group has already invested considerable historical cost but the associated costs have been gradually lowered, laying the foundation for rising gross margin of beef retail business this year.
Currently, the Group is shepherding four hundred Angus cows in its cowshed in Dalian. However, the average annual production was very limited after all and it was not satisfactorily cost-effective. To enhance breeding rate and strictly control cattle quality, a more eclectic approach would be to improve coordination with farmers. The Group has just set up a dedicated team to collaborate with farmers. On one hand, the Group assists farmers in the breeding, so as to breed more high-quality plump Angus beef for future output, on the other hand, the Group also provides individual guidance on feeding methods of Angus cattle and the required cattle feed directly. The farmers may choose to sell the calves born for three months to the Group, or wait until the Angus cows reach the age of fifteen to sixteen months and sell them to the Group at individually set prices. The Group will then take over the feeding for another four to six months until the cows become about 20-month old when they are ready for the market sale.
He added the purchase price of an ordinary cow from farmers is about 12,000 yuan, but the Group can sell at 18,000 yuan in the market, where 6,000 yuan profit can be gained, making a huge margin. He also stressed that due to the purchase and sales contracts entered into with the farmers, Dalian local government is now willing to finance the farmers with small loans, which is not only boosting the regional economy, the Group may also enjoy a high synergy effect. The economic benefit of corn grit, with 8% high protein content, is paramount of all for cattle fattening. As preliminary estimates, the Group can provide 70% of cattle feed on its own. The management is poised to extend similar cattle fattening operating model into other regions in the mainland so as to magnify the economic benefit of Angus cattle fattening.