CCM: XTAD vs. Jiangsu Tiansheng: reliance on common liquorice products, poor competitiveness in market

   Note: Financial figures of Jiangsu Tiansheng were only from Jan. to July, sourced from its prospectus. Its full-year report did not specify the performance of its liquorice products business.

  Source: Company reports

  
The fall in XTAD's sales of liquorice products can be mainly attributed to its lack of competitiveness, according to analyst CCM. This is also the reason why it showed completely different performance compared to Jiangsu Tiansheng.

  
Accordingly, XTAD is developing varied but scattered products, ranging from liquorice products to cotton, dairy products, chemical fibre products and seedlings, all of which are simply processed, having low added value. According to its financial report, XTAD is mainly selling liquorice extract, liquorice extract powder, glycyrrhizic acid ammonium salt, liquorice extract spray dried powder and glycyrrhizic acid, of which liquorice extract and liquorice extract powder (both crude extracts) play a key role.

  Specifically, the output of liquorice extract and liquorice extract powder respectively reached 730.39 tonnes and 601.16 tonnes respectively in 2015, and the sales volume hit 183.78 tonnes and 595.49 tonnes. The overall gross profit margin of liquorice products was 8.90%.

  
Such a development pattern indicates that if XTAD intends to make profit, 2 conditions should be provided externally: one is the stably increasing demands for such liquorice products, the other is a small quantity of competitors.

  
However, more and more enterprises, positive about the industry development, have stepped into this segment – the 2nd requirement cannot be met.

  
In recent years, many state-owned enterprises have extended their supply chains to the upstream through M&A. However most of them are unable to produce high added value products, leading to rare product differentiations in the market.

  For instance, in the field of glycyrrhizic acid ammonium salt, producers commonly are not qualified for GMP (= good manufacturing practice, certification for producing drugs), and instead, are focusing on the food additive business. In this context, their products are not allowed to sell to the domestic regular pharmaceutical enterprises or the foreign largescale food enterprises.

  
Comparatively, Jiangsu Tiansheng's liquorice products are boasting high refinement and high added value. It is mainly offering active pharmaceutical ingredients (API) and raw materials for APIs to the pharmaceutical enterprises involved in liver disease treatment, and is partially doing business with enterprises not involved in pharmaceuticals, such as healthcare products for live protection, food additives and cosmetics.

  In 2015, the company realised a growth of USD1.42 million (RMB9.40 million) in gross profit and 9 percentage points in overall gross profit margin, thanks to its increased sales volumes of liquorice products. According to its prospectus unveiled in 2015 for listing on the New Third Board (= National Equity Exchange and Quotations), in Jan.-July, its gross profit margin of liquorice products was 38.61%. 

  
Jiangsu Tiansheng's portfolio spans:

  
•     APIs: potassium glycyrrhefate M, glycyrrhizic acid ammonium salt S and diammonium glycyrrhizinate   

  
•     Plant extracts: glycyrrhizic acid A, glycyrrhizic acid ammonium salt, dipotassium glycyrrhizinate and glycyrrhizic flavone   

  
XTAD's development pattern based on simple raw material processing also brings another abuse. That is, the fluctuations of the raw material prices which make up the largest proportions in the production costs, will greatly impact the gross profit margins of products, especially when the competition gets fierce, and the product prices are forced to go down. XTAD's financial figures about producing liquorice products in 2015 are as follows:

  
•     Total costs: USD7.97 million (RMB51.45 million)   

  
•     Costs for raw materials (direct): USD7.02 million (RMB45.31million), 88.06% of the total   

  
•     Labour costs (direct): USD0.42 million (RMB2.70 million), 5.26% of the total   

  
•     Manufacturing expenses: USD0.53 million (RMB3.44 million), 6.68% of the total   

  
Since the liquorice in China is mainly imported and is settled based on USD, the exchange rate fluctuations will also bring uncertainty to the prices of raw materials.

   
Though the high profits of liquorice products mainly come from pharmaceutical and healthcare industries, CCM expects glycyrrhizin, as a natural sweetener highly praised at home and abroad now, to have a more promising prospect in fields such as food, given that the development and utilisation of liquorice are being deepened.

  
Hence, Jiangsu Tiansheng, which has already engaged in the liquorice deep processing business, is certainly to gain profits if it enlarges the input in expanding the sales channels and exploiting the end use markets. Meanwhile, XATD is expected to improve the comprehensive utilisation of liquorice and to strengthen the product competitiveness; otherwise, it will be trapped in vicious cycle, to price lowly and compete with many similar enterprises.

  This article comes from Sweeteners China News 1605, CCM

  About CCM:

  CCM is the leading market intelligence provider for China's agriculture, chemicals, food & ingredients and life science markets. Founded in 2001, CCM offers a range of data and content solutions, from price and trade data to industry newsletters and customized market research reports. Our clients include Monsanto, DuPont, Shell, Bayer, and Syngenta. CCM is a brand of Kcomber Inc.

  For more information about CCM, please visit www.cnchemicals.com or get in touch with us directly by emailing econtact@cnchemicals.com or calling +86-20-37616606.

  Tag: sweetener   pharmaceutical