China Minzhong Food Corporation

[Salty]

Dividend coming

[l0nEr]

In the previous Q1 earnings, they mentioned this:

On the processing front, the Group is on track to complete the construction of Phase 2 of its New Industrial Park processing facilities in the coming months. With additional capacity coming on stream, the capacity constraints at the Group’s existing processing facilities will be
alleviated during the upcoming peak period. With new facilities and room for further expansion, the New Industrial Park will serve as the main growth driver for the Group’s processing business for the next three to five years.

However, in Q2, there was totally no mention of the New Industrial Park. Anybody knows anything about this?

Not sure about dividends, but they did say they are open to share buybacks recently... but they might have some capex coming on, since they are starting the new industrialized farming in Jiangsu?


One thing i noticed was that the Chairman Lin Guo Rong has about 12million shares (in RMB terms thats RMB60m). However, he made a personal guarantee of RMB50m on behalf of the company. Personally, i thought this kinda shows the level of commitment he has for the company.
I'm also equally interested in the relationship between them and Tianjin Huancheng Investment Co., which is guaranting RMB30m loan on behalf of Minzhong. And why they did not use secured debt when they have quite a number of PPE.

[Nick]

LEADING INDONESIAN PACKAGED FOOD PRODUCER ACQUIRES 14.95% STAKE IN CHINA MINZHONG

- Business synergies between two listed food companies, opening the door to potential regional collaborations in future.
- Net proceeds of approximately S$85 million to be used for building new industrial farming capacities and working capital purposes.

http://info.sgx.com/webcoranncatth.nsf/V...300298AEE/$file/CMZ_PressRelease_15Feb13_finalversion.pdf?openelement

Wow Indofood !

(Not Vested)

[cyclone]

Private placement of 98 millions shares at SGD 0.915 to Indofood Sukses Makmur Tbk. The New Shares will represent approximately 14.95% of the issued and paid-up share capital of the Company immediately following the completion of the Proposed Subscription.

<not vested>

[l0nEr]

Seems like everybody loves the fact that they issued shares to Indofood + relatively healthy earnings... stock up 11.8% to SGD 1.14

[Ray168]

It gap up (>17%) and close @ 1.20

Seems like everybody loves the fact that they issued shares to Indofood + relatively healthy earnings... stock up 11.8% to SGD 1.14

[weijian]

However, in Q2, there was totally no mention of the New Industrial Park. Anybody knows anything about this?

Not sure about dividends, but they did say they are open to share buybacks recently... but they might have some capex coming on, since they are starting the new industrialized farming in Jiangsu?

Hi I0ner, you can refer to pg19 of 2Q2013 result presentation to get the update on the processing Industrial Park at Tianjin. Seems like they are a tad late as they previously promised to complete Phase2 in Dec2012.

Previously, Mgt guided 2013 Capex to be ~400mil (at which ~170mil has been utilised by 1H2013 and i suspect this does NOT account for the newly announced industrial farm at Jiangsu.

Assuming the farm size is about 150mu and the cost=475k/mu, the industrial farm will incur capex of ~750mil. The share placement to PT IndoFood will have ~350mil earmarked for industrial farming. Operating cash flow (assuming it collects its receivables on time) can cover the remaining shortfall and leave some excess for dividend/sharebuyback.

For some time now, Mgt has always guided that it is prefers sharebuybacks over dividends. However, after issuing shares to PT IndoFood at a 10% discount to the market price, i am not sure it make sense to do any sharebuyback scheme if share price continues to be significantly higher than previous issue price. IMO, existing shareholders are penalized in the event a sharebuyback is done. A dividend would be better. (although my gut feel is, there will be no dividend)

[l0nEr]

Hi I0ner, you can refer to pg19 of 2Q2013 result presentation to get the update on the processing Industrial Park at Tianjin. Seems like they are a tad late as they previously promised to complete Phase2 in Dec2012.

Previously, Mgt guided 2013 Capex to be ~400mil (at which ~170mil has been utilised by 1H2013 and i suspect this does NOT account for the newly announced industrial farm at Jiangsu.

Assuming the farm size is about 150mu and the cost=475k/mu, the industrial farm will incur capex of ~750mil. The share placement to PT IndoFood will have ~350mil earmarked for industrial farming. Operating cash flow (assuming it collects its receivables on time) can cover the remaining shortfall and leave some excess for dividend/sharebuyback.

For some time now, Mgt has always guided that it is prefers sharebuybacks over dividends. However, after issuing shares to PT IndoFood at a 10% discount to the market price, i am not sure it make sense to do any sharebuyback scheme if share price continues to be significantly higher than previous issue price. IMO, existing shareholders are penalized in the event a sharebuyback is done. A dividend would be better. (although my gut feel is, there will be no dividend)

Oh thanks! Didnt notice that. Yeah, it's already close to end-February and they have not provided an provided an update to the phase 2.

yep, just thought yesterday's 16% rally seems a little too much given the share placement at such a low price. I'll be real happy if I am Indofood (quick 20+% gain). That said, it is coming from such a low PE, with such a high growth rate. The stake sale also kinda lowers the fear in s-chips. (but why are Indonesian companies seen to be less corrupted than the Chinese?... i think Muddy Waters just find Indonesian companies too small or the language too difficult to read thats why...)

yupp.. highly doubt there will be any share buybacks or dividends this year actually, if the capex remains as high as you mention.

[l0nEr]

I emailed the Investor Relations and he has kindly replied, so I thought i should just share some of the responses here since it might be useful. Red font is just some personal thoughts.

1) Tianjin Huancheng (which has provided a corporate guarantee for China Minzhong) is actually a government-related company that encourages investment into Tianjin. Corporate guarantees for bank loans are actually quite common in PRC, especially for smaller companies (eg. at our subsidiary level).
==> kinda shows that Minzhong gets support from the government, and presumably shows the business is legit

2) The reason for using non-secured debt is because the debt are typically revolving. The personal guarantee by Mr. Lin is due to a new banking relationship, and is expected to be subsequently waived.

3) At this moment most of the PPE pertains to processing facilities, and not industrialized farms.

4) The New Industrial Park is actually our new processing facilities. We are in the final phase of commissioning our facilities, which shall be completed by the end of the financial year.
==> does this mean delay until end-June 2013? I guess the presentation was referring to financial year and not calendar year

5) planned capital expenditure for this financial year is approximately RMB550 mln (approx. RMB200 mln for the New Industrial Park and RMB350 mln for industrialized farming expansion).

6) Going forward, Company will be more focused on acquiring land for industrialized farming purposes, rather than conventional open-field farmland. Will be less land intensive.

7) Yes, there are plans for dividends/ share buybacks.
==> Same official reply. But personally thinks the odd is still low

8) Remaining lease period for the farm land averages around 7-8 years. None of the contracts has been affected by recent government land reforms. Company has also taken some efforts to reduce risk of any land redevelopments.
==> sounds good that they have locked in the leases for at least the next 7-8 years, there is lower risk that the government might seize the land or farm land might be reduced.

9) Industrialised farming land is also leased from the government, and the government has been very supportive of it. But they are not able to convert old farmland into industralised farming land
==> perhaps thats why he said majority of the PPE is actually processing facilities and not industrialised farming. News have also reported that the central government is very supportive of industrialised farming due to urbanisation. However, I guess the inability to convert the farmland kinda reduces the potential for fast growth

10) Currently industrialised farming is used for King Oyster Mushroom only, but they are looking to use it on Champignon mushrooms, which is their largest revenue contributor.
==> this was also mentioned in the earlier announcement last year, means no progress yet?

11) largest customers are localised wholesalers and export distributors based in PRC.
==> With some 'fears' over the significant trade receivables, i probably should have asked in greater details on this. Particularly since we dont exactly see how much produce is actually sold overseas.

hope that helps. still like the company, but probably would vest if the stock price corrects a little.

cheers.

[freedom]

GIC has divested all their stake in China Minzhong. and I still remember that another investor invested into the company at below $1 in large quantity. yet, all the investors in the SGX are still chasing it higher.