China Minzhong Food Corporation

[wsreader]

Regarding the debacle at Chaoda, doesn't the company name already sound out to investors that the company is toasted?

(I'm just kidding, in case you thought this is a serious post.)

[Nick]

CHINA MINZHONG 1Q FY2012 NET PROFIT UP 77.9% TO RMB93.1 MILLION

- Broad-based revenue growth of 36.8% to RMB361.4 million, across both cultivation and processed business segments
- Gross margin rose 7.7 ppt to 40.7%, underpinned by an improved product mix, maturing yield and higher operating efficiency
- Positive contributions in FY2012 arising from new farmland and commencement of processing operations at New Industrial Park

http://info.sgx.com/webcoranncatth.nsf/V...7002454F5/$file/ResultsAnnt1Q2012Minzhong.pdf?openelement [SGX Announcement]

http://info.sgx.com/webcoranncatth.nsf/V...70024A62E/$file/Minzhong1QFY2012PressRelease.pdf?openelement [Press Release]

http://info.sgx.com/webcoranncatth.nsf/V...70025F803/$file/1QFY2012ResultsPresentation.pdf?openelement [PPT Slides]

China Minzhong closed at 97.0 cents giving rise to a market capitalization of $540 million.

(Not Vested)

[weijian]

...........1Q2012.....1Q2011
GPM......40.7%......33.0%
EBITDA..41.0%.......29.5%

Commonly, EBITDA = Gross Profit - operating expenses (selling,distribution,admin) and should always be lower...
So for this result, how can EBITDA margin be bigger than Gross Profit Margin? What kind of accting is this?

I haven't got a chance to look into details..But based on the numbers in the SGX announcement..
Gross Profit = Revenue - cost of sales (page1)
EBITDA = Net Profit + depreciation +/- interest income/expense - tax - depreciation/amortization (page16)

The numbers seem to add up for above and hence I am still unable to reconcile why EBITDA margin can be higher than GPM.....Anyone can help?

[Nick]

If I am not mistaken, gross profit took into account depreciation so this would explain the difference.

Prospectus:

Our overall gross profit margin for our fresh vegetables produce was approximately 62.7%, 59.5% and 46.1% in FY2007, FY2008 and FY2009 respectively. The decline in overall gross profit margin from FY2007 to FY2009 was due to the increase in depreciation and amortisation charges of the land improvement cost, as we have been increasing our farmland from FY2007 to FY2009.

[weijian]

Nick,
Thanks for the prompt response.

If depreciation is counted in 'cost of sales', then is it a cash cost or non-cash cost?
The amt of depreciation/amortization of land improvement costs stated has been fully accounted for in the FCF statement. (non cash cost) Hence it sounds really weird to be counted under cost of sales (which should be a cash cost item)

To a layman like me, this kinda of accting treatment looks really dubious..

[dzwm87]

CMZ has fallen to $0.74, which means it is trading at 3.64x P/E of FY11 earnings (restated to new outstanding shares) and 0.71x P/B of FY11 NAV (restated as well).

On an annualised basis for FY12, it will be 5.53x P/E and 0.69x P/B.

I think for certain, CMZ is definitely on a different league than S-chips. It may have suffered a fair bit of S-chips poor sentiments but anybody knows what are the possible reasons behind the sell down?

Also, I recall earlier that CMZ can't finance farmland purchases through debt, hence ROE will be a better measure. Does this means that P/E and P/B is rendered useless?

[tonylim]

Such low PE and big discount to NAV , is market very inefficient or otherwise ? Worth pondering.

[Bibi]

Those who invested because govt link corporation are major shareholders must have forgotten or never heard of the China Aviation Oil saga.

[dzwm87]

Those who invested because govt link corporation are major shareholders must have forgotten or never heard of the China Aviation Oil saga.

did a check up on CAO - if I am not wrong, CAO is more of an insider trading fraud where the CEO took too huge a gamble on oil futures? In other words, CAO business is real to begin with and unlike the many other S-chips frauds where their fraudulent business is a fake to begin with. To put it in a better picture, it will be akin to YZJ's CEO accumulating huge losses in its microfinancing business but no doubt that YZJ business is real in its financial figures.

does anybody knows of a particular S-chips which a govt-linked corporation invested in and yet the business is a fraud?

[freedom]

Those who invested because govt link corporation are major shareholders must have forgotten or never heard of the China Aviation Oil saga.

did a check up on CAO - if I am not wrong, CAO is more of an insider trading fraud where the CEO took too huge a gamble on oil futures? In other words, CAO business is real to begin with and unlike the many other S-chips frauds where their fraudulent business is a fake to begin with. To put it in a better picture, it will be akin to YZJ's CEO accumulating huge losses in its microfinancing business but no doubt that YZJ business is real in its financial figures.

does anybody knows of a particular S-chips which a govt-linked corporation invested in and yet the business is a fraud?

I think the current s-chip saga is not really about whether the business exists, but the overstatement of their respective financial statements.

no one knows whether Minzhong overstates its financial statements.