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Shenzhen Jinxinnong Feed Company Limited
 
Leveraging its technological advantage to become a leading supplier of piglet creep feed
 
by David LIN and YANG Yang
 
 
Founded in November 1999, Shenzhen Jinxinnong Feed Company Limited (Jinxinnong) started as a small private enterprise in southern China's Guangdong province. In June 2008, the company went through a major restructuring with the financial support from two main shareholders: Shenzhen Chengnong Investment Company and Shenzhen Qingsong Investment Company. Several years later in February 2011, it was listed on Shenzhen Stock Exchange.
 
In less than fifteen years, Jinxinnong has become one of China's leading piglet feed suppliers. Mainly engaged in the research, development, production and distribution of swine feed, its products include mixed feed, concentrated feed, premixes and piglet creep feed. The company is also involved in swine breeding and hog farming.
 
 
Financial Status
 
According to its annual reports, the volume of Jinxinnong's feed sales more than tripled in six years, rising 274% from 128,400 tonnes in 2007 to 479,600 tonnes in 2013. Although the figure fell short of the of 500,000-tonne target the company set for 2013, its production still increased at an impressive 22.5% average annual rate over these six years, and by 10% in 2013. 
 
The company generated sales revenue of RMB1.99 billion (US$319.52 million) in 2013, up 12% compared to 2012. However, operating profit fell sharply by 35% to RMB42.80 million (US$6.87 million), while net profit was down 22% to RMB42.12 million (US$6.76 million).
 
Rather than reflecting on the company's management, the poor profit performance was due to China's unusually week feed consumption, which fell for the first time in over three decades last year.
 
Jinxinnong also produced 26,342 head of hogs in 2013, a surge of 44% compared to 2012. Unfortunately, this large increase in swine production worked against the company, as tumbling hog prices made its swine rearing unit suffer heavy losses.
 
 
Competitive edge
 
Hog feed manufacturers are ubiquitous in China, as per capita pork consumption of 38kg accounts for nearly 60% of total meat demand. Large-scale agricultural companies, such as CP Group and New Hope Group, have become domestic icons as leading hog feed manufacturers.
 
Twins Group is another company that has made a mark in the feed industry in recent years. In 2013, Twins Group sold 9 million tonnes of hog feed, making it the country's largest pig feed manufacturer by sales volume. In terms of market share, Dabeinong Group has taken the biggest chunk in China's premix pig feed market. 
 
Although Jinxinnong is overshadowed by these major feed enterprises, the company has gained an envious position in the high-value niche market for piglet creep feed. Backed by core developmental and production technology, Jinxinnong's feed for weaning piglets provides higher feed conversion ratios and average daily weight gain, making it superior to its competitors.
 
Jinxinnong's president and general manager, Chen Junhai has a PhD in animal nutrition from China Agricultural University and an executive MBA from Beijing University. Chen was one of the first Chinese piglet feed researchers and continues to supervise the company's product research and development activities.
 
With its rapid expansion, the company's output rivals that of other leading piglet creep feed suppliers, including Jiangsu Anyou Group, Shanghai Xinnong Feed Co., Ltd., Shanghai Gentech Co., Ltd., Twins Group, Guangxi Yangxiang Group, Dabeinong Group, Guangxi Guilong Group, Zhejiang Gomore Group and Shenzhen Inve Group.
 
Because its relatively high selling price offers wide profit margins, many swine feed suppliers are competing for a share of the piglet creep feed market. Alongside domestic companies, foreign multinationals such as US-based Purina and DKVE China (a subsidiary of Belgium's VITAMEX) are also vying for a piece of China's piglet feed market.
 
There is no official information on multinationals' market share but data compiled by a leading Chinese livestock information website ixumu.com, shows that Jinxinnong is China's third largest creep feed supplier.
 

Ranking

Company

Production in 2012 (tonnes)

1

Twins Group

85,000

2

Jiangsu Anyou Group

70,000

3

Jinxingnong

60,000

4

Fujian Aonong Group

50,000

5

CP Group

48,000

6

Shanghai Xinnong Feed Co

35,000

7

Dabeinong Group

33,000

8

Guangxi Yangxiang Group

30,000

9

Guangzhou Datainong Group

20,000

10

Shenzhen Inve Group

15,000

Table 1: China's top ten creep feed manufacturers in 2012

 
Huge potential for piglet creep feed
 
According to the "Action for Productivity" series by BPEX, piglet creep feeding is an ideal means of smoothing their transition away from sow's milk to solid feed. By initiating and promoting gut and digestive enzyme development, creep feeding prepares piglets to digest nutrients from food sources other than sow's milk.
 
In commercial farming, piglets are often introduced to creep feed as young as seven days old. It goes on until piglets are weaned off milk and peaks during the first one to two weeks after weaning.
 
With the consolidation and modernisation of China's swine sector, creep feeding has become an increasingly important, highly profitable niche market. Based on the average weaning age of 23 days old and a 30-day period of creep feeding that commences seven days after birth, each piglet consumes approximately three kilograms of creep feed.
 
China had a hog population of approximately 475 million head in 2013 and at least two generations of hogs are raised annually. If creep feed was universally used, the annual market size would amount to at least 2.85 million tonnes.
 
That is 6.2 times greater than the volume of creep feed sold by China's top ten domestic suppliers in 2012. It also demonstrates just how much expansion potential Jinxinnong and its rivals have.
 
 
Investments and long-term strategy
 
To meet the anticipated sharp rise in demand, Jinxinnong completed three capacity expansion projects in 2013 with the funds raised through its IPO. These include the Hunan subsidiary, Changsha Chengnong Feed Company, which contributes an additional 100,000-tonne yearly production capacity; Huizhou-based subsidiary, Guangdong Jinxinnong Feed Company, which increased its production capacity by 230,000 tonnes; and its Heilongjiang subsidiary, Harbin Yuanda Animal Husbandry Company, which boosted its yearly capacity by 60,000-tonnes.
 
Additionally, in April 2012, Jinxinnong invested RMB40 million (US$6.41 million) in its Changchun subsidiary to build a 100,000-tonne capacity swine feed plant. In August 2013, the company invested RMB47 million (US$7.53 million) in its Shenyang subsidiary to build a 100,000-tonne feed plant.
 
Currently, Jinxinnong's feed production capacity totals 770,000 tonnes per annum, while a capacity utilisation rate of 62%. The company expects its feed sales to reach 600,000 tonnes in 2014.
 
Jinxinnong has rolled out a 10-year development plan, aptly named "1036". According to the plan, over the next 10 years, it seeks to become a leading agricultural enterprise in China that will be able to produce 3 million head of hogs and sell 6 million tonnes of feed annually.
 
To achieve these goals, Jinxinnong has adopted a different strategy than its competitors. Integrators and large-scale farms are the main customers of its piglet creep feed. By leveraging long-term business relationship with such large customers, the company is able to sell other feed products, thereby expanding its market reach.
 
The strategy seems to be paying off. Despite its hog price crash-induced troubles in 2013, Jinxinnong's performance improved at the beginning of this year. For the first quarter of 2014, the company realised operating income of RMB485.35 million (US$77.78 million), an increase of 21% on-year; while net profit soared 174% on-year to RMB11.97 million (US$1.92 million).
 
With its integrator clients expanding their herds and China's hog market recovering, Jinxinnong expects net profit to rise 40% in the first half of 2014.
 
 
Stock information
 
That should be welcome news for the company's stock price. In the previous two years, Jinxinnong's stock averaged around RMB12/share (US$1.92/share), ranging from RMB9/share(US$1.44/share) to RMB15/share (US$2.40/share).
 
Its price bottomed in June 2013 in tandem with China's swine sector but has steadily risen and looks poised to continue increasing.
 
Jinxinnong's stock price (source: Bloomberg)
 


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