China Minzhong Food Corporation

(12-05-2011, 12:17 PM)littlecupid Wrote: The numbers are incredible, 37% margin for selling just vegetables. S$ 50 mio in profit in 1 quarter is so lucrative, maybe I should change job to sell vegatbles...haha

That's the beauty of China companies listed in Singapore regardless of what kind of industry that they are in. It can be textile, soya bean processing, corn processing, education, forestry, environmental technology or metallurgy and typically, we will see outstanding profit margin in the initial years. Anything less than 30% is a disgrace.

It's amazing...

I just downloaded their 2010 annual report and I saw many Photoshop-ed photos(worse than online netizens' work)... Since they had so many farms and facilities, why can't they use more original photos?

(12-05-2011, 11:17 AM)kazukirai Wrote: Having said that, 37% or 30+% to grow and package vegetables seems ridiculously high to me. Anyone know of any comparable companies from other countries?

There are 2 other companies in HK that is closest comparable to them.
China green and chaoda Modern. China green has been short sell by some fund managers as I warn earlier in another thread on accounting irregularities. Chaoda has been regularly raising money and then diverting money to other users other than farming. now lately there is china forestry scandal. I think CMZ could be suffering from all these scandals or maybe something else..... ??? CMZ numbers and business model looks good but whether it can be trusted is another different question even with GIC invested. Some big boys were caught with china forestry scandal too.

At the end of the morning session, there were 53,927 lots done at overall value of S$90.661mn, or S$1.6802 per share.

Open price - S$1.68
High - S$1.68
Low - S$1.56
Previous - $1.78

I'm not sure how it is possible that the average price of the share being traded is higher than the "high price" of the day. I'm guessing that given the unusually high volume, it could be due to a married trade done by a large shareholder. As far as I know, the prices at which married trades are executed are not captured in the data used to compile the daily high and low prices that SGX publishes.

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By the way, high margins in agricultural farming are not unusual in China. Chaoda, one of the largest farmers in China has generally been reporting high net margins of 50% to 60% for the past 10 years. In the one or two years when there was a blip, net margin fell to... about 40%.

I believe this is due to the government's inclination to support a high vegetable price due to the large number and proportion of farmers in their labour force. If they can influence prices to levels that can provide 5% to 10% margins to small-scale farmers, it could mean that larger players can easily exploit economies of scale to attain higher margins. As recent as late last year and early this year, there were stories of individual families boycotting markets and growing vegetables in their own backyard. And even on the rooftops of city buildings. I have forgotten the web links, but these can be easily verified by a google search.

In recent times, due to high inflation, the government has reversed track and expressed their inclination for vegetable prices to come down. It remains to be seen what kind of impact (large/small/long-term/short-term) this will have on farmers and companies like China Minzhong.

(12-05-2011, 12:42 PM)cif5000 Wrote: Minzhong is more "sophisticated" and is not a pure farmer.

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I forgot to state the obvious. The farmer has no control over both the output and selling price.

I don't doubt that China Minzhong is a more than a pure farmer. From their business model (extracted from their Website), it seems to me that China Minzhong 1) Grows their own vegetables, 2) Takes these vegetables + Buys vegetables from other sources (farmers, i'm guessing) and 3) processes and packages them for the local and overseas markets.

Cif-san,

The extracted nos. from FY10 and their Prospectus (using the DBS Vickers nos.) show that the Net Profit Margin has been consistently above 25%. It hit 30+% in one year, the rest it was about 25-27%.

Is this a fair gauge of a vegetable seller's Net Profit Margin?

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(12-05-2011, 01:23 PM)Jacmar Wrote: There are 2 other companies in HK that is closest comparable to them.
China green and chaoda Modern. China green has been short sell by some fund managers as I warn earlier in another thread on accounting irregularities. Chaoda has been regularly raising money and then diverting money to other users other than farming. now lately there is china forestry scandal.

Hi Jacmar,

Thanks for the info.
The article was really interesting.

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(12-05-2011, 01:27 PM)D123 Wrote: I believe this is due to the government's inclination to support a high vegetable price due to the large number and proportion of farmers in their labour force. As recent as late last year and early this year, there were stories of individual families boycotting markets and growing vegetables in their own backyard. And even in the rooftops of city buildings.

Ahhh, Good 'ol government regulation. This probably explains it.

China Minzhong's response to SGX's query this morning.....
http://info.sgx.com/webcoranncatth.nsf/V...E001D1F8D/$file/ReplytoSGXquery.pdf?openelement

So 2 large shareholders have sold some shares, with the 40.0m share sale crossed at $1.69 done at 10:46a.m. this morning, and likely with J.P. Morgan (S.E.A.) Ltd as the counterparty acting as a middleman.

While it is always possible for fraud to occur in a S Chip, I hope having GIC as a major shareholder (second largest with 16.5% stake) for years with director in the Board will boost its corporate governance significantly.

The announcement is just out - substantial shareholder has sold half of its shares.

The margins are comparable to its peers. The much larger listed rival in HK, China Chaoda ( http://www.chaoda.com.hk/n4/main2.asp?id...6&ejbh=128 ) - has net margin exceeding 40% for the past 5 years.

Olympus Leaf was the largest shareholder (17.0%) stake with 91.3 million shares at an average cost of $0.28. Seems they are taking profit to channel into other ventures ?

Lets see how it turns up - another large scale fraud ???

(Vested)

(12-05-2011, 01:31 PM)kazukirai Wrote: I don't doubt that China Minzhong is a more than a pure farmer. From their business model (extracted from their Website), it seems to me that China Minzhong 1) Grows their own vegetables, 2) Takes these vegetables + Buys vegetables from other sources (farmers, i'm guessing) and 3) processes and packages them for the local and overseas markets.

Cif-san,

The extracted nos. from FY10 and their Prospectus (using the DBS Vickers nos.) show that the Net Profit Margin has been consistently above 25%. It hit 30+% in one year, the rest it was about 25-27%.

Is this a fair gauge of a vegetable seller's Net Profit Margin?

Like I said, a farmer's margin is meaningless so I wouldn't want to interpret it. Instead, I would break down the business by (1) physical output over the years from their own base, (2) trading volume and profits. Then you will know whether (1) they are productive as a farmer, (2) they are a smart (lucky) trader. The ratio of 1 and 2 should also be revealing. This is for the fresh vegetables segment. And since this segment accounts for only one third of its revenue, more emphasis should be placed on the processed vegetables. No thoughts on the latter but I have a question. If fresh vegetables are more profitable, why work so hard on the processed vegetables segment?

(12-05-2011, 02:16 PM)Nick Wrote: The announcement is just out - substantial shareholder has sold half of its shares.

Olympus Leaf was the largest shareholder (17.0%) stake with 91.3 million shares at an average cost of $0.28. Seems they are taking profit to channel into other ventures ?

(Vested)

From my conversation with the CFO sometime back, out of the 3 PE investors 2 PE investors are reqd by their own mandate to divest their holdings with CMZ within 2 years of listing. GIC is not reqd to do so. So there will be more selling to come as we get closer to the 2 year mark from listing.

Hi Nick and all,

Thanks for the info! Since high net margins are quite typical of such companies, I wonder what the ROE is like though?

Nick, any idea on the ROE of China Minzhong for the last 5 years?

Also, is there artifically suppressed competition or government regulation which enables these high margins to be obtained? Quite intriuged that's all.

(12-05-2011, 03:17 PM)Musicwhiz Wrote: Hi Nick and all,

Thanks for the info! Since high net margins are quite typical of such companies, I wonder what the ROE is like though?

Nick, any idea on the ROE of China Minzhong for the last 5 years?

Also, is there artifically suppressed competition or government regulation which enables these high margins to be obtained? Quite intriuged that's all.

It has averaged 25-30% ROE over the past 4 years.

China Minzhong is a 'National Leading Dragon Head Enterprise' since 2002. This gives it access to prime cultivation land at favorable prices as it is recognized as one of the industry's leaders.