Summary: In Aug., Jinhe Biotechnology, China Starch and Shandong Ensign announced their H1 2023 results, which all posted a decrease in revenue for the first half of the year.

Jinhe Biotechnology Co., Ltd. (Jinhe Biotechnology) recorded a dip in revenue partly due to the lower sales of starch and its co-products, as per its H1 2023 report unveiled on 23 Aug.

Jinhe Biotechnology's H1 2023 results (unaudited)

• Revenue: USD144.84 million (RMB1.03 billion), down 8.26% YoY
• Net profit attributable to shareholders of the listed company: USD12.54 million (RMB89.36 million), up 3.08% YoY
• The increase is mainly due to the lower production costs compared to the year-ago period, plus the surging US dollar and other factors.
• Net profit attributable to shareholders of the listed company after deducting non-recurring gains and losses: USD11.67 million (RMB83.17 million), down 0.67% YoY
• The overall gross profit margin went up by 1.26 percentage points YoY.
• The higher margin was because the decrease in operating costs was greater than that in the revenue.

 

Business review

• Veterinary drugs: The revenue from chlortetracycline fell 17.83% YoY, which was attributed to the lower selling prices and sales drop. Although the purchase price of corn starch the main raw material declined slightly, Jinhe Biotechnology had to cut the prices of its hit product chlortetracycline to ensure its market share of chlortetracycline due to the softness in downstream markets. Despite the price cut, the sales of chlortetracycline slipped amid the economic downturn.
• Starch and its co-products: The revenue from starch and its co-products declined sharply due to weak downstream demand and lower selling prices of corn starch and its co-products. Moreover, the lower prices resulted in the gross profit margin falling about 5 percentage points YoY to 6.17%.

China Starch Holdings Limited (China Starch) saw a revenue decline and a profit loss in the first half of the year, according to its H1 2023 report released on 11 Aug.

China Starch's H1 2023 results (unaudited)

• Revenue: USD815.67 million (RMB5.81 billion), slightly lower than that in the prior year
• Gross profit: USD24.59 million (RMB175.25 million), down 75.8% YoY
• After-tax profit: -USD4.06 million (-RMB28.96 million), retreating from USD51.16 million (RMB364.70 million) in the same period last year

 

Business review

• Upstream products
• Sales of corn derivatives increased significantly, but their average selling price was pressured by oversupply and stagnant market demand. Among others, the average selling price of corn starch sank 6.68% YoY.
• The production costs rose sharply, as a result of the elevated corn price.
• Fermented products and downstream products
• Lysine: The plummet in the domestic pig prices in H1 weakened the demand for animal feed and breeding markets for lysine products. Therefore, the average selling price of lysine products experienced a sharp decrease.
• Starch-based sugar: A glut of starch-based sugar significantly pushed down the sales. But the rise in production costs sent the average selling price higher.
• Modified starch: The development of liquid-modified starch led to an increase in the revenue from modified starch.
• Other: The substantial increase in revenue from biobased material was mostly because of the trial run in 2022.

On 28 July, Shandong Ensign Industry Co., Ltd. (Shandong Ensign) released its H1 2023 report, which showed its revenue was weighed down by the sales of citric acid products.

Shandong Ensign's H1 2023 results (unaudited)

• Revenue: USD410.48 million (RMB2.92 billion), down 39.18% YoY；
• Net profit attributable to shareholders of the listed company: USD35.96 million (RMB256.32 million), down 86.34% YoY
• Net profit attributable to shareholders of the listed company after deducting non-recurring gains and losses: USD25.65 million (RMB182.87 million), down 90.12% YoY
• Gross profit margin: 13.85%, down 36.98 percentage points compared to 50.83% in the same period last year

 

Drivers of the decline in revenue and gross profit margin

• The revenue from citric acid products for the reporting period decreased drastically. Although the sales grew 6.64% YoY, the selling price of citric acid products skid 50.36% YoY as the market prices of citric acid have been falling since June 2022.
• The gross profit margin of citric acid products dropped 38.88% YoY as the pick-up in production costs coincided with the revenue slump.

 

But as the rebound in downstream demand and exports, the market price of citric acid was gradually levelling off. Looking ahead, Shandong Ensign will continue to expand sales channels, improve the automation level of production, reduce costs and increase efficiency to improve its business performance.