China Essence

Net operating is the closest estimate to what I had in my mind, since there will be hardly any capex next year I agree there is a tiny chance for the cash flow to be positive even in the case of negative full year result. That would indeed be good enough for me, but I didn't think this case that far into detail.

After all, I'm really sceptic on the long term profitability of most recent investments. At some stage the company must enter a period of slightly steeper depreciation, which will limit it's ROE and EBIT margin permanently below 2005-2010 figures. That's not a thing I would be worried of, though, because higher revenues and somewhat decent sales margins in the long term would be quite satisfactory end result - considering current share price.

(28-08-2012, 09:09 PM)Underdogger Wrote: Hi

May I check ur definition of cashflow?

Net operating CF?
Free cashflow (after capex)?
overall cash increase?

Operating CF = net income + depreciation + interest expense , etc

Even if net income is negative, the operating CF can still be positive if depreciation is greater than the loss in net income...

What is your view on the starch price?

potato supply has dropped but we are still not seeing the recovery of starch price....

(29-08-2012, 03:01 PM)jzk Wrote: Net operating is the closest estimate to what I had in my mind, since there will be hardly any capex next year I agree there is a tiny chance for the cash flow to be positive even in the case of negative full year result. That would indeed be good enough for me, but I didn't think this case that far into detail.

After all, I'm really sceptic on the long term profitability of most recent investments. At some stage the company must enter a period of slightly steeper depreciation, which will limit it's ROE and EBIT margin permanently below 2005-2010 figures. That's not a thing I would be worried of, though, because higher revenues and somewhat decent sales margins in the long term would be quite satisfactory end result - considering current share price.

(28-08-2012, 09:09 PM)Underdogger Wrote: Hi

May I check ur definition of cashflow?

Net operating CF?
Free cashflow (after capex)?
overall cash increase?

Operating CF = net income + depreciation + interest expense , etc

Even if net income is negative, the operating CF can still be positive if depreciation is greater than the loss in net income...

think at this rate, we are going to see 2 to 3 cents soon...

With a massive debt of 800mil RMB (including CB) that is 5 times more than its typical annual net cash flow (FY11, it was $150mil increase in net cashflow), just wonder how it can pull thru...

(29-08-2012, 10:01 PM)Underdogger Wrote: What is your view on the starch price?

potato supply has dropped but we are still not seeing the recovery of starch price....

Absolutely no insight on that issue. Never had, never will. As previously stated, I do not possess any industry specific knowledge on potato processing. My wish is, that as production tonnages (of the whole industry) will go down as of now, this would in turn push starch price up. Schedulewise this should take place as soon as this harvest potatoes get downstream to be sold. Whether China Essence has been able to grasp enough raw stuff by that, I only can guess.

In short term, during last two weeks around 3 million shares have been sold, apparently with no specific interest on the limit order price. It would be great, if the seller was Sanlam. Is there any way to get more information on the progress of ownership? Even if the seller was Sanlam, they still have more than 30 million shares left. On the other hand, insider sales is one thing I would not like to see at this stage.

Qingmei with more than $500mil RMB net cash (zero gearing) is trading at ard 6 cents.
Does it make sense for Essence to still trade at 4.1 cents?

Why didn’t Essence’s board propose a cut of salary by 20 to 30%?

In fact, Essence's director fee had even increased!!!!!

Ridicuous!
*******

Koda Ltd reported on Thursday that it remained in the red for the fourth quarter ended June 30, 2012 and fiscal year 2012, prompting its deputy chairman to voluntarily accept only 80 per cent of his salary.
Koda, a furniture company, said its deputy chairman and managing director, James Koh Jyh Gang, has volunteered to accept only 80% of his salary for the time being.
This is "in view of the challenging market conditions and to demonstrate long term commitment to the company," it said.
Koda's net loss for the fiscal fourth quarter was US$1.83 million, little changed from a net loss of US$1.85 million a year ago.
This is despite a 40 per cent jump in revenue to US$12.86 million.
For the full year ended June 30, 2012, net loss was US$2.63 million, compared to US$2.94 million a year ago. Revenue for the year was up 17.9 per cent at US$47.12 million.
"...the results were disappointing in the face of the incredible amount of work done and cost rationalization,'' Koda said.
It blamed "the very weak global demand for furniture" for the poor performance.
Koda said it intends to continue its strategy of maintaining sales to the US whilst offsetting declines in the UK/EU with new demand from the Asia Pacific.
"The strategy is driven by the falling Euro, concerns about the EC as well as improved Asian affordability. To date we have achieved strong revenue growth in Australia, Korea, Japan and the PRC (via Metrolink),'' it said.
The board believes that the current year will improve over that of FY2011 and barring unforeseen circumstances believes the company will return to modest profitability.

I find it rather surprising for the starch report to mention that inventory low was still high and there was still limited market demand for potato starch, and the sales were slow….

Starch manufacturers were buying raw potatoes at 640 to 680 RMB per tonne (compared to Essence 700 to 750 RMB)

This bring us back to the question of fundamental demand for starch…. Can restaurants, noodle makers use other cheaper substitutes?

I heard that chef uses a mixture of flour and starch. If starch is hard to get (lack of supply or too expensive), then use more flour.

Then demand for potato starch is quite elastic as chef can just switch over...

Comments pls?

******************

1. 黑龙江地区大型马铃薯淀粉企业库存量价高，个别企业仍维持在1.5-2万吨，后市心态不一，下游多观望，采购者零星，淀粉市场需求有限，走货偏慢。本月23日前后，黑龙江地区淀粉企业将陆续收购原料，据悉大厂收购价格执行0.32-0.34元/斤，9月份后价格或存小幅下调预期。中小型淀粉企业库存量低，淀粉装置设备陆续检修完毕，等待新产季开工投产，对原料收购价格持谨慎态度。哈尔滨地区马铃薯淀粉一级粉主流市场价6000元/吨，较前期小幅下挫200-300元/吨。

a no of S chips might bite the dust?

*****
China Deterioration Raises Risk of Wen Missing Target: Economy
China’s economy is showing mounting signs of deterioration from manufacturers to banks, raising the risk that outgoing Premier Wen Jiabao will miss his growth target for the first time since taking office in 2003.
Manufacturing slowed further in August, surveys of purchasing managers showed Sept. 1 and today, with one gauge at the lowest level since March 2009. The readings added to evidence of weakness after a surfeit of unsold goods left near- record rubber stocks at China’s main hub for the commodity and financial strains saw a 27 percent jump in overdue loans at the five biggest banks in the first half.
China hasn’t failed to exceed the Communist Party’s annual growth target since the throes of the Asian financial crisis in 1998, and a miss of this year’s 7.5 percent goal may complicate a once-a-decade leadership handover. The outgoing generation of policy makers has held back on stimulus this year as it seeks to rein in a property-market boom and avoid a jump in bad debt.
“If there is no further policy response, it’s very likely that GDP growth will fall below the target and this administration will likely hand over a hard-landing economy to the next one,” said Liu Li-Gang, chief China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. The central bank should “revert to cutting banks’ reserve requirements more aggressively to revitalize the economy. If we have a cut soon we could have good fourth-quarter growth.”
Financial Strains
The risk of below-7-percent expansion could potentially trigger financial distress or even a crisis if local governments run out of money, said Liu, who has worked for the World Bank and Hong Kong Monetary Authority. Underscoring a buildup in strains, Construction Bank Corp. reported its overdue loans in the eastern manufacturing and export hub of the Yangtze River Delta doubled to 16.8 billion yuan ($2.6 billion).
Liu cut his estimate for full-year expansion to 7.8 percent from 8.2 percent after the release of the official manufacturing purchasing managers index. The gauge fell to 49.2 from 50.1 in July, below the estimates of 24 of the 25 analysts in a Bloomberg News survey. The dividing line between expansion and contraction is 50.
A separate manufacturing PMI released today by HSBC Holdings Plc and Markit Economics was at 47.6, indicating the fastest contraction in more than three years, with an employment index at a 41-month low. A government services PMI showed a faster expansion in August.
The Shanghai Composite Index (SHCOMP), China’s benchmark stock gauge, rose 0.6 percent today. It fell 2 percent last week to the lowest level since February 2009, and is heading for its first three straight years of annual declines since the Shanghai Stock Exchange opened in December 1990.
Yuan Drop
The yuan, which has weakened 0.9 percent this year, is on pace for its second annual decline since the country overhauled the exchange-rate system in 2005 and removed a peg to the U.S. dollar.
ANZ is the latest bank to lower its growth forecast. Mizuho Securities Asia Ltd. on Aug. 31 cut its projection to 7.6 percent from 8.1 percent while Bank of America Corp. reduced its estimate last month to 7.7 percent from 8 percent.
Asia’s next two largest economies are also showing signs of slowing. Japan’s industrial production unexpectedly slumped in July, data showed Aug. 31. India reported the same day that its gross domestic product increased 5.5 percent last quarter from a year ago, down from an 8 percent pace in the same period in 2011.
India today said exports in July dropped 14.8 percent from a year earlier, while imports declined 7.6 percent. Australian retail sales unexpectedly declined in July by the most in almost two years, data today showed.
Inflation Pressures
The slowdown in growth has dissipated inflation pressures, with South Korea today reporting consumer prices rose 1.2 percent in August from a year before, down from the 1.5 percent increase the previous month. Thailand’s inflation rate slowed to 2.69 percent in August from 2.73 percent in July. Indonesia’s core inflation rate fell to 4.16 percent from 4.28 percent, while total inflation held below 4.6 percent.
A gauge of euro-area manufacturing may confirm a contraction for a 13th straight month in August. The U.S. observes its Labor Day holiday today. Three days ago, Federal Reserve Chairman Ben S. Bernanke signaled he’s prepared to deploy additional asset purchases amid an American unemployment rate that’s “far above” the Fed’s mandate.
Economic growth has slowed for six quarters to 7.6 percent in the three months through June from 9.8 percent in the fourth quarter of 2010 as Europe’s debt crisis crimped exports and a prolonged crackdown on property speculation damped domestic demand.
Further Measures
The slowing will continue this quarter to 7.4 percent, according to Lu Ting, at Bank of America in Hong Kong, the No. 1 forecaster on China in Bloomberg Markets’ annual ranking of global economists for the two years through September 2011. He said there’s a risk the full-year rate will be below 7.5 percent, and growth may miss his forecast if the government “fails to roll out further policy measures in the next few months.”
Growth averaged 10.9 percent from 2005 to 2011 when the target was 8 percent and was as high as 14.2 percent in 2007. The government set a goal of an average 7 percent expansion for the five-year plan that runs through 2015.
Industrial companies’ earnings fell in July by the most this year, according to government data. The nation’s steelmakers posted a 96 percent drop in first-half profit as demand weakened and prices fell, the China Iron and Steel Association said July 31.
Plant Shutdown
Hitachi Construction Machinery Co., the world’s third- biggest maker of building equipment, is shutting its Chinese plant for two weeks a month until October due to a sales slump, President Yuichi Tsujimoto said in an Aug. 29 interview.
Inventories of rubber at Qingdao port, the country’s main hub for the car-tire material, were forecast to match a January record last month on a weaker auto market, Li Xiangou, chairman of the city’s rubber exchange, said in an Aug. 17 interview.
Retailers are also suffering. Parkson Retail Group Ltd., which operates more than 50 department stores in China, said first-half same-store sales rose at less than a quarter the pace of a year earlier and sportswear seller Li Ning Co. (2331) shut 1,200 shops in the six months ending June 30.
China’s government has refrained from a stimulus on the scale of the 4 trillion yuan package unveiled during the global financial crisis that helped keep growth above 9 percent in 2008 and 2009 while the rest of the world slumped.
Wen said in October the government would “fine tune” economic policies. Since then, banks’ reserve requirement ratios have been cut three times, approvals for investment projects have been accelerated and social security and health spending have risen. The central bank lowered interest rates in June for the first time in three years and cut them again in July.
Stimulus Reticence
“The lack of really decisive bold action over the last few months signifies at least in some part the government is content with a growth figure closer to the actual target than perhaps they would have previously liked,” said Alistair Thornton, an IHS Global Insight economist in Beijing. “They’ve got sufficient clout to turn things around if they really want to and they’ll only really want to when the labor market feels the impact.”
A growth rate of 7.5 percent to 8 percent would still compare well with the world’s biggest economies. The International Monetary Fund’s latest forecasts, published in July, put U.S. expansion this year at 2 percent and Japan’s at 2.4 percent with the euro area contracting 0.3 percent.
Korean Experience
Even so, China is at risk of repeating the experience of South Korea in the 1990s, where a slower pace of growth resulted in a “significant deterioration” in profits as companies were burdened with higher fixed costs from capital spending booms aimed at supporting the economy, according to Duncan Wooldridge, chief Asia economist at UBS AG in Hong Kong.
“China’s reluctance so far this year to replicate the investment surge in 2009 is a good thing even if it delays a cyclical improvement by a few quarters,” Wooldridge wrote in the Aug. 30 note.
With less than seven months left in office, Wen may need to leave the task of reviving growth to new crop of government officials due to take over in March 2013 after the annual session of the National People’s Congress.
“There have been rising concerns within policy circles in Beijing that the government’s growth target of 7.5 percent for the year may be at risk,” said Ramin Toloui, Singapore-based global co-head of emerging-markets portfolio management at Pacific Investment Management Co., which manages the world’s largest bond fund.
“More policy easing helps shield against a major contraction, but is unlikely to catalyze a strong recovery because the economy and financial sector is still digesting the large investments made in recent years,” said Toloui, who visits Beijing several times a year.

Are we going to see a similar “crush spread” in potato starch?

i.e. starch price is sticky and will not rise dollar for dollar even if potato price is pushed upwards, leading to loss for potato starch production…


********

http://soberlook.com/2012/08/is-ethanol-...oline.html

Bloomberg/BW: - The Obama administration is reviewing the country’s ethanol policy amid calls from both political parties and the United Nations to suspend annual targets as the worst drought in 56 years spurs corn prices.

Twenty-five U.S. senators, both Republicans and Democrats, asked Lisa Jackson, administrator of the Environmental Protection Agency, to halt or lower mandates on how much ethanol the country must use this year and next. The senators’ Aug. 7 letter followed an Aug. 1 petition from a bipartisan coalition of 156 members of the House of Representatives.

“I would simply say that the EPA, in consultation with the Department of Agriculture, is looking at this,” Jay Carney, the White House press secretary, said today in Washington. “I don’t have a statement one way or the other predicting what the experts are going to say.”
How material is the risk of US gasoline prices being impacted by the spike in corn prices or is this just a political maneuver on both sides of the isle? After all we are in the midst of what could turn out to be a close presidential election and such petitions should be taken with a grain of salt.

Based on the latest data, it turns out that these politicians are full of hot air. According to the US Energy Information Administration (EIA) the US ethanol production is expected to be reduced by only about 3%.
EIA: - EIA has reduced its 2012 ethanol production forecast from 900 thousand bbl/d (13.8 billion gallons) in last month’s Outlook to 870 thousand bbl/d (13.3 billion gallons). EIA expects ethanol production to recover in the second half of 2013, averaging about 880 thousand bbl/d for the year.
Also the elevated corn prices are not impacting ethanol price on a dollar for dollar basis. The spread between the two commodities has turned negative, with ethanol prices rising less sharply. The so-called "crush spread" is calculated as follows:
Crush Spread = (Ethanol price per gallon x 2.8) - Corn price per bushel



Source: EIA

This decline in spread means that ethanol prices are sufficiently sticky and will not rise in proportion to corn prices. And the 3% expected reduction in ethanol prices will simply reduce ethanol exports.
EIA does not expect the current situation in corn markets to have a significant effect on the pump price of gasoline. Given the year-to-date ethanol supply and the availability of banked renewable identification number (RIN) credits, the current relationship between the prices of ethanol and petroleum-based gasoline components, and the relatively modest share of ethanol in the overall gasoline pool [10%], we expect gasoline prices will continue to be driven by crude oil prices and refining margins. The impact of the forecasted decline in domestic ethanol production should be primarily reflected in reduced ethanol exports.
So when politicians begin taking credit for reducing gasoline prices by pressuring the EPA to relax the ethanol rules, it's nothing more than political gamesmanship. Changing the mixing rules will do little to impact the cost of gasoline because it's not ethanol but crude oil prices that determine how much we pay at the pump.

(04-09-2012, 09:43 PM)Underdogger Wrote: Are we going to see a similar “crush spread” in potato starch?
...

Don't you think that is what has been going on for almost a year now?

Quote:(by Potatolover)
...Starch manufacturers were buying raw potatoes at 640 to 680 RMB per tonne (compared to Essence 700 to 750 RMB)...

Are you saying, that potato price is 10% down from the last guidance?

Quote:(By Potatolover)
Qingmei with more than $500mil RMB net cash (zero gearing) is trading at ard 6 cents.
Does it make sense for Essence to still trade at 4.1 cents?

If loving potatoes doesn't prove to make you a good living, you still have a bright future ahead of you in the flourishing hedge fund industry.