China Minzhong Food Corporation

[Nick]

DMG Research team kindly provided an estimated figure for the gross margin of the latest product (king oyster mushroom).

China Minzhong doubles king oyster mushroom cultivation capacity (SGXNET)

Tan Han Meng, CFA, CPA (6232 3839, hanmeng.tan@sg.oskgroup.com)
Terence Wong, CFA (6232 3896, terence.wong@sg.oskgroup.com)

The news: China Minzhong (MINZ) announced the successful commencement of operations at
its new king oyster mushroom cultivation facility in Tianjin City, PRC, which has a 4 tonnes/day
production capacity, bringing its total capacity to 8 tonnes/day. Its facilities in Tianjin and
Shanghai are currently operating at full capacity. Given the closed-room, temperature and
humidity controlled environment, MINZ is capable of cultivating king oyster mushrooms
throughout the year, and looks to benefit from traditional supply shortage during off-peak summer
production periods with expected higher selling prices and better gross margins. MINZ targets to
increase its total king oyster mushroom cultivation capacity to 15 tons/day by end 2011 and 24
tons/day by end 2012.

With regards to recent shares transactions by its private equity shareholders namely Olympus
Leaf and CMIA, MINZ explained that it is natural for private equity firms to have exit strategy
given the closed end nature of the funds. The announcement noted that board representatives
from Government Investment Corporation of Singapore, Olympus, and CMIA continue to express
optimism in the Company’s expansion plans and remain confident in its business prospects.

Our thoughts: We view the expansion plan for king oyster mushroom positively given a) its high
gross profit margin of close to 70% and b) a daily capacity of 24 tonnes by end 2012 could see
the segment making up close to 5% of MINZ’s revenue. Despite concerns over share sales by its
private equity shareholders, share price is up 18% YTD and 34% since its IPO at S$1.20 per
share. We continue to like MINZ’s attractive agriculture thesis and believe share price will react
positively to its earnings momentum amid a lighten share overhang situation. Maintain BUY at TP
of S$2.28.

Research Report: http://www.remisiers.org/cms_images/1_Ju...atters.pdf

(Vested)

[l0nEr]

Hi all, sorry to interrupt. Just saw this stock and found the fundamentals looking quite good. With drought in China, seems like profits margins will be going up?

Just curious, on 12 May the stock fell sharply on news that there might be share placement. Was there a conclusion to the rumors? Truthfully, the company seems more than adequate on cash to require share placement. With debt/equity so low, debt seems to be a better choice for financing.

Also, as an S-chip, any thoughts on the Corp Governance or accounting issues in the light of S-chip scandals. I understand that GIC holds quite a large stake (probably much due diligence work done) and a non-big 4 (certainly not EY) is the auditor.
"Chaoda Shares Plunge After Next Says It Overstates Land Area" http://www.reuters.com/article/2011/05/2...2E20110526

[Nick]

Hi all, sorry to interrupt. Just saw this stock and found the fundamentals looking quite good. With drought in China, seems like profits margins will be going up?

Just curious, on 12 May the stock fell sharply on news that there might be share placement. Was there a conclusion to the rumors? Truthfully, the company seems more than adequate on cash to require share placement. With debt/equity so low, debt seems to be a better choice for financing.

Also, as an S-chip, any thoughts on the Corp Governance or accounting issues in the light of S-chip scandals. I understand that GIC holds quite a large stake (probably much due diligence work done) and a non-big 4 (certainly not EY) is the auditor.
"Chaoda Shares Plunge After Next Says It Overstates Land Area" http://www.reuters.com/article/2011/05/2...2E20110526

The share price fell in 12 May because the largest shareholder (a Private Equity Fund) placed out 40 million of its own existing Minzhong shares. This isn't new shares issued by China Minzhong. It didn't raise any money. Share Price has recovered from the $1.42 low to close at $1.60 today.

There is no guarantee that corporate governance of any company is 100% solid but I hope GIC (and other shareholders) presence in the Board and the Management's small stake in the Group will mitigate the risk.

This is certainly a high risk - high gain investment. Don't look at GIC name on the Board and equate it to DBS etc ! Let's see how it goes in 4Q 2011 and beyond.

(Vested)

[l0nEr]

Hmm... in terms of high risk i would agree, and the stock is pretty "cheap" for its fundamentals. Just wondering if you have a target price for it. Thinking if there are other blue chips (safer), but offering similar returns, given the current depressed market

[Nick]

Lim & Tan has summarized their discussions with the CFO in a research report:

http://www.remisiers.org/cms_images/DRev...062011.pdf

China Minzhong closed at $1.44 which translates to a market capitalization of S$801 million.

(Vested)

[Nick]

Lim & Tan has summarized their discussions with the Management during a recent farm visit which saw 5 sell side analysts and 1 buy side analyst attending:

http://www.remisiers.org/cms_images/20ju...-daily.pdf

Interesting points relating to its operation, the industry in China and the sale of shares by PE Funds recently were raised and summarized in the above mentioned report.

(Vested)

[Nick]

9 page unrated research report from OCBC about its recent farm visit - http://www.remisiers.org/cms_images/Ch__...062011.pdf

An article on Minzhong's organic food store in Fujian - http://www.chinadaily.com.cn/m/fuzhou/e/...780585.htm

FY 2011 result should be released in Aug 2011. Not a call to buy or sell.

(Vested)

[l0nEr]

Prices doesnt seem to be going anywhere these days... but at least CMIA has completed their sale of the shares.
With weak market sentiments, hoping the FY2011 results will lift expectations of the stock. The current valuation now seems a little too low when compared historically.

[dydx]

Any fellow forumers hold shares in CMZ, which is now the subject of a privatization GO at $0.19/share by controlling shareholder Mr Shao Kesheng.....
http://info.sgx.com/webcoranncatth.nsf/V...100375A62/$file/CMZ_First_Joint_Annt.pdf?openelement

The GO price of $0.19/share is lower than CMZ's IPO price of $0.23/share in Jul07. CMZ has a profitable business producing quality zippers based in PRC. The business has been growing steadily since IPO. CMZ has so far paid out a total of $0.065/share in yearly dividends and a $0.03/share capital reduction in Jul10, but missed dividend payment in FY11 (ended 31Mar11). From hindsight, sensitive investors could have picked up a cue from this change that a possible privatization move could be forthcoming.

I could have bought more CMZ shares, but sadly I didn't!

[Musicwhiz]

9 page unrated research report from OCBC about its recent farm visit - http://www.remisiers.org/cms_images/Ch__...062011.pdf

An article on Minzhong's organic food store in Fujian - http://www.chinadaily.com.cn/m/fuzhou/e/...780585.htm

FY 2011 result should be released in Aug 2011. Not a call to buy or sell.

(Vested)

Hi Nick,

China Minzhong released their FY 2011 results this morning. Any thoughts on the results?