Is Shandong Fengxiang Stock a Buy?

Is this Chinese chicken producer a buy for long-term investors? –

Shangdong Fengxiang Co Ltd (SEHK: 9977) is China’s largest fully-integrated white-feather chicken exporter with other businesses in raw and processed products.

The company’s recent business performance has been significantly stronger than its competitors and it enjoyed a cumulative increase of 6.3% in its share price since going public.

Soon after the listing, the company is trying hard to convince investors that it has transformed from the aquaculture sector to the consumer sector.

Multi-channel sales strategy

Currently, Fengxiang mainly sells its products to both businesses (2B) and end-users (2C). In the 2B model, Fengxiang has always had a leading position in the industry.

The transformation from B2B to B2C has always been a pain point but since Fengxiang entered the B2C market in 2017, it achieved the number one spot in terms of sales in 2020.

According to Fengxiang’s prospectus, the B2C segment in 2019 has accounted for 6.4% of total revenue. Online sales have grown for more than 10 times.

What is more noteworthy is that Fengxiang’s B2C business growth in 2018 and 2019 was as high as 118.5% and 137.8% year-on-year, respectively, and that this growth hit a record high of 500% in the first four months of 2020.

Given Fengxiang has initially opened up the B2C sales channels, it has leveraged its accumulated resources and set up an R&D centre in Tokyo, which continues to improve its domestic R&D and production standards.

Acceleration of B2C and overseas business

It seems that Fengxiang has not slowed down amid the Covid-19 situation. The company is actively still developing its B2C market.

From 2017 to 2019, its B2C revenue increased from RMB 2.4 billion (US$351 million) to RMB 3.9 billion, with a compound annual growth rate (CAGR) of 27%.

In addition, as early as 1996, Fengxiang already started its overseas business, and the company has more experience in the international markets than its peers.

In 2018, in terms of export revenues and export volumes, Fengxiang was China’s largest fully-integrated chicken exporter with a successful record selling to Japan, the EU, Singapore, South Korea, and many other countries that have stringent requirements for chicken.

Foolish conclusion

The completion of Fengxiang’s listing will not only help the company maintain its traditional advantages in the white-feather chicken industry, it will also add fuel to the company’s further expansion of its overseas business and B2C business.

Healthy and delicious chicken has always been a need for human beings. Fengxiang shares have been developing steadily over the years and this makes it a value investment target for investors.

More reading

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Edmund R doesn’t own shares in any companies mentioned.

The Motley Fool Hong Kong Limited( 2020

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