China Minzhong Food Corporation

[dzwm87]

on boy, how did I missed that!

[Nick]

GIC has already made their money here. They invested in China Minzhong in 2006 with cost price of 28 cents. They sold shares during IPO paring its stake down to 16.9% recouping its initial capital.

(Not Vested)

[dzwm87]

GIC has already made their money here. They invested in China Minzhong in 2006 with cost price of 28 cents. They sold shares during IPO paring its stake down to 16.9% recouping its initial capital.

(Not Vested)

Hi Nick, saw that you were vested in CMZ in your earlier posts but you are no longer vested from Sept 2011 onwards.

May I ask what's your rationales in getting out of CMZ?

Thanks

[Nick]

GIC has already made their money here. They invested in China Minzhong in 2006 with cost price of 28 cents. They sold shares during IPO paring its stake down to 16.9% recouping its initial capital.

(Not Vested)

Hi Nick, saw that you were vested in CMZ in your earlier posts but you are no longer vested from Sept 2011 onwards.

May I ask what's your rationales in getting out of CMZ?

Thanks

The bulk of my shares were sold in June towards the end of the bull run. Sold the remaining in August.

I didn't buy again as it was clear in their latest FY result that they are not gg to pay a dividend. And I felt that there was high chance of equity raising to finance their growth. I have been lucky for Minzhong. Had I held on, the losses would have been huge.

Overall a profitable investment and one huge eye opener on the risk of investing in S-Chip (despite having pedigree shareholders)...what is 'cheap' can get a lot cheaper.

[dzwm87]

The bulk of my shares were sold in June towards the end of the bull run. Sold the remaining in August.

I didn't buy again as it was clear in their latest FY result that they are not gg to pay a dividend. And I felt that there was high chance of equity raising to finance their growth. I have been lucky for Minzhong. Had I held on, the losses would have been huge.

Overall a profitable investment and one huge eye opener on the risk of investing in S-Chip (despite having pedigree shareholders)...what is 'cheap' can get a lot cheaper.

If CMZ does start to pay out dividend, I believe it can be a strong catalyst to verify its strong business and help with its revaluation but I doubt it is any time soon.

Nonetheless, the more I read, the more interested I'm in CMZ. The extent of transparency which CMZ provides in its business is tremendous. I've read some news articles and it seemed that there were site visits being done for research analysts and lots of IR efforts being made too. CMZ CFO had also cried out for analysts to visit their sites to verify its existence. Unless it is a perfect play of reverse psychology, I will say the inference on CMZ business so far has been positive. Will be digging deeper into its numbers to check its verification. One thing I still can't understand is the earlier post on consolidating non-cash item (depreciation) into COGS - doesn't make sense at all!

But Nick, you're right.. what's cheap can indeed get a lot cheaper. Closed today at 0.705, I believe it can break the 0.70 support. Waiting for more decline while I do a more comprehensive research on the company.

[weijian]

with so many losses i wonder how they make money...... selling of changi airport to temasek to recoup ?

Look at some of the cash cows (some are monopolies) that they hold - ComfortDelgro, SMRT, SingTel, SATS, SPH, SingPost etc... i am making a guess that these cash cows are providing a cushion for all the well-documented investment losses..

---

If CMZ does start to pay out dividend, I believe it can be a strong catalyst to verify its strong business and help with its revaluation but I doubt it is any time soon.

Nonetheless, the more I read, the more interested I'm in CMZ. The extent of transparency which CMZ provides in its business is tremendous. I've read some news articles and it seemed that there were site visits being done for research analysts and lots of IR efforts being made too. CMZ CFO had also cried out for analysts to visit their sites to verify its existence. Unless it is a perfect play of reverse psychology, I will say the inference on CMZ business so far has been positive. Will be digging deeper into its numbers to check its verification. One thing I still can't understand is the earlier post on consolidating non-cash item (depreciation) into COGS - doesn't make sense at all!

But Nick, you're right.. what's cheap can indeed get a lot cheaper. Closed today at 0.705, I believe it can break the 0.70 support. Waiting for more decline while I do a more comprehensive research on the company.

i estimate it will be at least 3yrs before any dividend is paid out. During this period, maybe Mgt may declare a small token sum of dividend but i believe that's not going to help much.

I'm still in the progress of seeking the help of an accountant friend to understand more about 'consolidating non-cash depreciation of land in COGS' - the implications of doing so.

CMZ's share price has underperformed and been a on steady decline for last 3-4 weeks. I happened to read about this unprecedented Wukan's riot this morning and i think this may be 1 of the reasons for the underperformance?

http://www.bbc.co.uk/news/world-asia-china-16193089

Even though the farmlands involved are at Guangdong (CMZ's ones are at Fujian, Sichuan and Putian), there is the question in terms of how widespread the real problem is, and how much it can impact CMZ's existing operations and future expansion.

[touzi]

with so many losses i wonder how they make money...... selling of changi airport to temasek to recoup ?

Look at some of the cash cows (some are monopolies) that they hold - ComfortDelgro, SMRT, SingTel, SATS, SPH, SingPost etc... i am making a guess that these cash cows are providing a cushion for all the well-documented investment losses..

---

If I am not wrong, GIC does not invest in Singapore companies.

[dzwm87]

...........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?

Hi Weijian,

Was crunching the numbers for 1Q FY2012 and I've come to such an explanation. Please see if it's valid and possibly we can come up with a bigger discussion with respect to CMZ's business validity.

I have attached a simple spreadsheet which has all the required financial numbers.

Quite obviously, CMZ came to its EBITDA numbers as how Weijian has mentioned:

EBITDA = PBT + Net interest income + Depreciation & Amortisation

All the figures can be found in its 1Q report and I've copied it into the spreadsheet as well.

Now, looking at the numbers, you can mathematically figure out EBITDA margin is higher than Gross margin for 1Q FY2012:

1. Depreciation & amortisation have more than doubled yoy (RMB38.9m) and we know from Note 5 that Admin expenses consist of non-cash amortisation.

2. However, the whole chunk of RMB38.9m can't fall under Admin cost since 1Q total admin cost is only RMB23m. It's unlikely to fall under S&D or other cost. Hence, there is a high possibility that some of the non-cash charges are charged to COGS.

3. I don't want to get into too detailed an analysis on the number breakdown as I am not confident of its accuracy but based on the numbers, we know finance cost (net) under its P&L will be the exact number taken to add back and derive its EBITDA (RMB5.6m for 1Q FY12).

4. Hence, the net of operating items (Other income + S&D costs + Admin cost + Other cost) will be the "hurdle" to cross to ever attain a EBITDA margin which is higher than GPM. Of course, this happens to be the case where 1Q FY12 non-cash charges of RMB38.9m is more than the net of operating items (-RMB37.8m).

Therefore, now, we know that not only a portion of depreciation & amortisation is allocated to COGS but quite a significant portion of it is under COGS - since other items can't possible contain such non-cash charges.

I did some digging (link) and realised that such an accounting practice is not fraudulent and very much depend on what fixed or intangible asset is being used in its production.

Perhaps, for CMZ, land improvement, land rights or PP&E are considered part and parcel of its farming processing activities? And thus, such non-cash charges are attributed to COGS?

---

CMZ's share price has underperformed and been a on steady decline for last 3-4 weeks. I happened to read about this unprecedented Wukan's riot this morning and i think this may be 1 of the reasons for the underperformance?

http://www.bbc.co.uk/news/world-asia-china-16193089

Even though the farmlands involved are at Guangdong (CMZ's ones are at Fujian, Sichuan and Putian), there is the question in terms of how widespread the real problem is, and how much it can impact CMZ's existing operations and future expansion.

I highly doubt this is the reason for the sell down.

Reason so is because:

1. From the article, farmers lost their land because local government claim it back while only compensating the farmers with a small amount. Farmers then become furious because they have (1) lost their source of income & (2) given a pathetic compensation.

2. I will believe these farmers are independent farmers and aren't likely to be supplying crops to any of the bigger agricultural corporations. This is so because it is unlikely local government will "play out" the bigger agricultural corporations and suddenly seize back their farmlands. If I want to be an ass, I will seize from the smaller players first.

3. There is also a "double protection net" for CMZ. Under their FY11 Annual Report FAQ Section, they did cover a section on redevelopment risk and mention that their farmlands are far away from developed zone.

4. And looking on the possibility of a national widespread risk, I doubt it is likely to happen. I don't foresee a possible nationwide claiming of farmland for land sales. Farmland by themselves lack the proper infrastructure development and property developer is unlikely to purchase such land and develop the entire area from scratch. Perhaps, a few of such might happen but widespread likelihood is rare (IMO).

[dzwm87]

Further digging into its IPO Prospectus has shown that non-cash charges (depreciation & amortisation) are indeed factored into COGS.

Pg 56-57 of IPO Prospectus:
Manufacturing overheads - ....depreciation charges of PP&E...
Cultivation overheads - ...depreciation charges on land improvement costs, amortisation charges on operating lease prepayments...

[mrEngineer]

This is my impression of GIC based on feedbacks i gathered from work that they have too many investments to handle due to their extremely large portfolio. Therefore, it does not mean anything if GIC has a stake in the company. I would even doubt the due diligence efforts on their investment decisions