Real Nutriceutical Group (2010)

[hkwave]

Assuming it's financial statements are genuine. Need to do a lot more research and scuttle.

It's recent EPS was $0.60. Assuming it grows conservatively 10% for 10 years. It will become $1.56.

It's lowest PE so far was 2.6, traded at $1.67 back in May2012.

10 years later if it's EPS is $1.56, with the lowest PE 2.6, it will be $4.05.

Now why nobody is buying if it's so cheap? This are the reasons I can think of,

1. When IPO listed in Feb 2010, it went from $2 to $7 in 6 months, Lee Ka Shing and the owner started to sell some shares to take profit. Government of singapore even sold all it's 6.8% shareholding at $5.70, made >200% profit in a few months.

2. Shanghai index is in it's 3 year bear market since the bounce from the 2008 global financial crisis.

3. When it broke $5 in May 2011, all Technical Indicators confirmed bearish for the long term, I bet all the traders started to get out and shorting.

4. July 2010, Bawang shampoo was accused of having carcinogens, this may have scared off the investors in Real Nutri as well.

---

Margin of safety,

In it's latest interim report's balance sheet, using current assets to minus it's total liability, we are getting $1.55/share.

Li Ka Shing also bought back 454k shares at $1.75 on 26th June 2012 after taking profit in sept 2010 at $6.445

[dzwm87]

Maybe we can compare it with GNC.

GNC also have very good margin, lower because they are manufacturing in US?

http://phx.corporate-ir.net/phoenix.zhtm...vestorhome

From 2008 to 2011, GNC earns a GPM of between 35 to 36% and NPM of between 3% to 6%

In the similar period, Real Nutri earns a GPM of between 67% to 71% and NPM of between 19% to 31%.

In gross profit, Real Nutri almost earn twice as much. Flowing down to its bottom line, it earns five times as much! Not only does Real Nutri has such a strong cost savings in its heath products, its operating cost is much leaner than GNC. How true can that be when GNC is one of the global leading players? If the Chinese market is so lucrative, GNC will have enter the market as well. I don't think they are non-opportunistic.

I was initially attracted to Real Nutri due to its huge margins but what I've learned is that a good channel check can reveal a better picture.

Not a lot of companies can conservatively generate a consistent 10% earnings growth. It is a very strong assumption being made. I can't even be certain of the next 3 years. If you apply the same analogy to other stocks, then all low P/E will stand to be attractive.

[hkwave]

From 2008 to 2011, GNC earns a GPM of between 35 to 36% and NPM of between 3% to 6%

In the similar period, Real Nutri earns a GPM of between 67% to 71% and NPM of between 19% to 31%.

I do think factories in China will have better margin than factories in US, not sure by how much thou. I believe margin is one of the reason US factories moved to China

In gross profit, Real Nutri almost earn twice as much. Flowing down to its bottom line, it earns five times as much! Not only does Real Nutri has such a strong cost savings in its heath products, its operating cost is much leaner than GNC. How true can that be when GNC is one of the global leading players? If the Chinese market is so lucrative, GNC will have enter the market as well. I don't think they are non-opportunistic.

Are you assuming RMB1 is = US$1 ?

Why can't Marlboro or Dunhill cigarettes sell in China? You should be able to find more items that is popular in the western world but not in China.

How many chinese do you think will go for western medicine? Maybe that's why GNC is not in China?

[dzwm87]

I meant on margin percentage terms. I will say gone are the days when China can offer dirt cheap labor cost. If GNC wants, they can always find ways, either form a JV or buy up a stake in the local companies.

Anyway, I have given my 2c worth. The above are the reasons why Real Nutri isn't on my shortlist.

[hkwave]

I meant on margin percentage terms. I will say gone are the days when China can offer dirt cheap labor cost. If GNC wants, they can always find ways, either form a JV or buy up a stake in the local companies.

Anyway, I have given my 2c worth. The above are the reasons why Real Nutri isn't on my shortlist.

I prefer to do more research to confirm. Simple thing like margin, Li Ka Shing should have noticed it. I don't think he will increase his stake recently if he thinks the book was cooked.

[zio]

It's funny, I was trying to find out which companies are Real Nutri's competitors, and I arrived on this thread~
I'm also analyzing the company, the margins are attractive, CPS is also quite satisfying. Recent buy-ins is a good sign, based on CANSLIM investing principles. The only thing is that their FCF is highly unstable when I check their interim reports. Interim 2011, they had a negative FCF of -RMB35.98mln while interim 2012, they have a FCF of +RMB317.8mln. This is my main concern about this company. Books might be cooked, and products might not sell as good as they state. Deloitte is usually a reliable auditor, but in this case, hmm, i have my doubts.

I will check further and calculate the future price. I always have a margin of safety of at least 30%, and i'm pretty conservative with trailing EPS, I use averaged EPS.

[hkwave]

It's funny, I was trying to find out which companies are Real Nutri's competitors, and I arrived on this thread~
I'm also analyzing the company, the margins are attractive, CPS is also quite satisfying. Recent buy-ins is a good sign, based on CANSLIM investing principles. The only thing is that their FCF is highly unstable when I check their interim reports. Interim 2011, they had a negative FCF of -RMB35.98mln while interim 2012, they have a FCF of +RMB317.8mln. This is my main concern about this company. Books might be cooked, and products might not sell as good as they state. Deloitte is usually a reliable auditor, but in this case, hmm, i have my doubts.

I will check further and calculate the future price. I always have a margin of safety of at least 30%, and i'm pretty conservative with trailing EPS, I use averaged EPS.

I have been reading the annual reports only, didn't notice the 2011 interim cash flow. It's inventory increase significantly 18mil to 81mil in that 6 months, and trade receivables also increased from 383mil to 589mil. Can it be due to overstock? But 2011 annual cash flow was positive again.

If we use last 3 years positive cash flow per share of 0.30, it's 14% of current share price.

How do you calculate your margin of safety? By projected future price? Assuming the books are not cooked, what's your future price?

[hkwave]

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[Gaudente]

market cap 400 million cash in hand 2.4 billion ...ok , I definitely must give up the bad habit of reading annual reports

[specuvestor]

wow no debt and Chairman is Associate Director of China FDA somemore... looks like they probably got greater plans by discontinuing dividends past 2 years and don't want to marginalise OPMI by taking it private... honorable folks

nice find... made my day