Real Nutriceutical Group (2010)

[hkwave]

Currently studying it's annual reports, hopefully can find some valuebuddies in H-shares.

Here are some numbers to start with.

   
   

[pianist]

Currently studying it's annual reports, hopefully can find some valuebuddies in H-shares.

Here are some numbers to start with.

thanks for sharing...where did u get this stats from?

[hkwave]

Hi Pianist, these are the numbers I compile from it's financial statements.

[dzwm87]

The margins for its health amino acid supplement is too high to be true. If you read their prospectus, retail price is marked up further from their ASP. U can probably get their retail price on the online stores. Working backwards, the implied cost seemed to be too low to be true.

But the worse is the company has not been commited to their dividend policy. I don't have the figures right now but it seem they had been underpaying the payout ratio committed.

[pianist]

thanks. do u have any good forum(on HK stocks) to recommend?

[dzwm87]

Not that I know of any in English.. there are tons in Chinese but I guess they are mainly punt stocks

[hkwave]

The margins for its health amino acid supplement is too high to be true. If you read their prospectus, retail price is marked up further from their ASP. U can probably get their retail price on the online stores. Working backwards, the implied cost seemed to be too low to be true.

But the worse is the company has not been commited to their dividend policy. I don't have the figures right now but it seem they had been underpaying the payout ratio committed.

http://www.818.com/DrugDetails_10365027.shtml

It's selling at RMB129.

In Prospectus written,
"We supply this product in six sizes of boxes, containing 36, 45,
54, 72, 90 and 108 tablets, respectively. The recommended retail selling price of this product ranges
from RMB82 to RMB204 per box depending on the number of tablets contained in the box, and we
sell this product to our distributors at prices ranging from RMB22.0 to RMB109.0 per box."

Why you think the margin declared is not true? Can you elaborate a bit more?

I didn't read anywhere they are commited to any dividend payout ratio, where did you read this? Thanks.

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3 main products total 70% of revenue,
1. Ruinian amino acid tablets
2. Liquid amino acid
3. Herbal tea

In 2011, these products were still growing at 25~35%.

But in 1H2012, growth has slowed to 15~25%.

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By the way, Li Ka shing holds 5% of shareholding.

[dzwm87]

Retail price at RMB82 to RMB204, Real Nutri sells their products at RMB22 to RMB109.

Retailers can make as much as 100% to 400%? If it's so profitable, shouldn't Ruinian amino acids health product flood the Chinese market? Or why haven't they been able to push up the gap (or profit margin) which retailers are earning? I don't remember retailer/distributors earning such a wide spread. Their expertise is in distribution network, not much product value add which is able to warrant a 100% margin. My knowledge in health product is limited, so I might be wrong but then again, what's with health products that can allow such a wide spread? Probably Real nutri has some edge which I am not aware of.

Real Nutri's GPM has been around high 60% to low 70%. Using this same range, it means it cost only RMB7 to RMB30 to produce one box of health supplement. That's equating to about S$1 to 5.. too cheap? One may argue that it could be a result of Economies of Scale but I doubt so. Maybe a good comparison with similar peers may show the validity.

The IPO Prospectus does show the dividend policy - pg 9 - they expect at least 30% of profit to be paid out. Though it isn't a promise but most companies keep to it. Till date, if I recall correctly, Real Nutri paid less than 10% for the past 2 FYs.

Li Ka Shing holds 5% but based on its entire portfolio, it's probably a small proportion. Holding its current stake of 56m shares and assigning a value of HK$2 to each share, its gross investment is about US$16m. His latest net worth is at US$25.5b - investment is only 0.06% of his net worth. Don't forget, Li Ka Shing invested in the company before it was listed. Thus, the cost of investment should be lower than this. He can afford to lose everything and not lose his pants due to diversification. If we are intending to proportion that as well, it's fine to wager on Real Nutri's business.

[hkwave]

Copied from prospectus, yes you are right, they mentioned they expect 30% payout, but they only pay <10% in 2010 and 2011

DIVIDEND POLICY
After completion of the Global Offering, we may distribute dividends by way of cash or by other means that our Directors consider appropriate. A decision to distribute any interim dividend or recommend any final dividend would require the approval of our Board of Directors and will be at their discretion. In addition, any final dividend for a financial year will be subject to Shareholders’ approval. Our Board of Directors will review our Company’s dividend policy from time to time in light of the following factors in determining whether dividends are to be declared and paid:
Š financial results of our Company;
Š shareholders’ interests;
Š general business conditions, strategies and future expansion needs;
Š our Company’s capital requirements;
Š the payment by our subsidiaries of cash dividends to our Company;
Š possible effects on liquidity and financial position of our Company; and
Š other factors the Board of Directors may deem relevant.
Ruinian Industry declared and paid dividends of RMB138.6 million in respect of the year ended 31 December 2007. We did not declare or pay any dividends in other periods during the Track Record Period and currently do not expect to distribute dividends in respect of the year ended 31 December 2009. We currently expect that at least 30% of our profit after taxation for the year ending 31 December 2010 will be distributed as dividends, but the declaration of dividends will be subject to approval by our Board of Directors after considering the above factors and by our then Shareholders.

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On the GPM concern, I think retailers GPM are normal to be at high range because their main cost are from labor and rental. Maybe we can read a retailer's annual report to be sure.

Is watsons or georgetown listed?

[hkwave]

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