China Minzhong Food Corporation

[Nick]

China Minzhong continues to make new headway on its path to high growth. It intends to invest S$9.7 million to construct a new processing plant in Fujian to boost its overall capacity in order to meet customer's growing demands. It also intends to invest $29.7 million in leasing 15,200 mu of farmland in Jiangxi and Fujian Province. Attached is a list of post-IPO farmland lease data.

http://info.sgx.com/webcoranncatth.nsf/V...A00312957/$file/ChinaMinzhong-UseofIPOproceeds_6Apr2011.pdf?openelement

(Vested)

[Musicwhiz]

China Minzhong continues to make new headway on its path to high growth. It intends to invest S$9.7 million to construct a new processing plant in Fujian to boost its overall capacity in order to meet customer's growing demands. It also intends to invest $29.7 million in leasing 15,200 mu of farmland in Jiangxi and Fujian Province. Attached is a list of post-IPO farmland lease data.

http://info.sgx.com/webcoranncatth.nsf/V...A00312957/$file/ChinaMinzhong-UseofIPOproceeds_6Apr2011.pdf?openelement

(Vested)

Wow that's one heck of an announcement, especially the farmland table! Lots of info to analyze.

So the acquisition of more farmland means they can expand their land banks for growing more of their foodstuffs? Are they vertically integrated in that they control the entire supply chain from growing to harvesting to wholesaling/distribution? If so, how are their competitors doing vis-a-vis to China Minzhong and what are their market share(s) like?

[Nick]

Yes. They are integrated - some of the vegetables goes to their processing plants to be processed and exported while some of the fresh produce are immediately sold as fresh vegetables within the PRC. Within SGX, there isn't any other company dealing with this except for Yamada Green. This industry is highly fragmented with nobody dominating it. Bulk of the land are in the hands of individual farmers and villages. This is why CMZ leases it from them and with the 'National Leading Dragon Head Enterprise' recognition, they can purchase/lease land at favorable terms.

[Nick]

http://www.nextinsight.net/index.php/com...ts-now-say - A summary of Macquarie latest research report. Pretty bullish.

But we must also take note that the vegetable market in China has CRASHED. How this will impact the likes of China Minzhong or Yamada (and even Sino Grandness) remains to be seen.

http://www.marketwatch.com/story/china-s...2011-04-28

(Vested)

[Nick]

CHINA MINZHONG’S 3QFY2011 NET PROFIT NEAR DOUBLED TO RMB261.1 MILLION ON ROBUST VEGETABLES DEMAND

 9MFY2011 net profit of RMB469.8 million has surpassed full year net profit of RMB367.5 million in FY2010

 3QFY2011 revenue grew 34.3% to RMB703.9 million, underpinned by growth in both fresh vegetables produce and processed vegetables segments

 Improvement in 3QFY2011 gross margin by 5.8ppt to 47.0% while net margin increased by 11.3ppt to 37.1%

 Since IPO, Group has more than doubled vegetable farmland area to capitalize on growing demand for vegetables

http://info.sgx.com/webcoranncatth.nsf/V...80039B3D8/$file/Minzhong3QFY2011PressRelease.pdf?openelement [Press Release]

http://info.sgx.com/webcoranncatth.nsf/V...8003892EC/$file/3Q2011Minzhong-9May11.pdf?openelement [SGX Announcement]

http://info.sgx.com/webcoranncatth.nsf/V...80038552E/$file/Presentation_Slides_final.pdf?openelement [PPT Slides]

A very good set of results with a clear expansion plan ready to fuel its profit growth over the next few years. Management believes the current correction in vegetable prices will be short lived and have minimal impact on their profitability since they deal with higher end products. The continued urbanization, rising global population and demand for healthier food products should benefit the Company. As always, black swan events like natural disasters may cripple its production ability.

(Vested)

[D123]

I don't usually comment on trading activity, but there's some strange trading today.

7,256 lots done so far, valued at about S$12mn or S$1.676 per share.
High - S$1.68
Low - S$1.56
Previous close - S$1.78

This is strange since they announced generally positive 3Q results only three days ago.

[Musicwhiz]

I actually didn't notice the numbers the first time (my bad haha), but China Minzhong has a net margin of 37%? Seems rather high by any standards, but in particular for a vegetable grower. How is it that they can have a gross margin of 47% and a net margin of 37%? Expenses such as selling, admin, distribution and staff costs only take up 10%?

Frankly, I don't know the nature of the business well enough to comment on the business model, but this just throws up a query from me because 37% net margin is really extremely high!

[kazukirai]

I actually didn't notice the numbers the first time (my bad haha), but China Minzhong has a net margin of 37%? Seems rather high by any standards, but in particular for a vegetable grower. How is it that they can have a gross margin of 47% and a net margin of 37%? Expenses such as selling, admin, distribution and staff costs only take up 10%?

Fellow vegetable grower, Yamada Green Resources, reported Net Profit Margins of 32% for FY 2010.

I believe SGA can take up 10% in China, at least that was the impression I got from reading some articles about how US isn't going to start competing with China in manufacturing even if the Yuan appreciates due to the small proportion of labour costs in China Manufacturing.

Having said that, 37% or 30+% to grow and package vegetables seems ridiculously high to me. Anyone know of any comparable companies from other countries?

[littlecupid]

I actually didn't notice the numbers the first time (my bad haha), but China Minzhong has a net margin of 37%? Seems rather high by any standards, but in particular for a vegetable grower. How is it that they can have a gross margin of 47% and a net margin of 37%? Expenses such as selling, admin, distribution and staff costs only take up 10%?

Fellow vegetable grower, Yamada Green Resources, reported Net Profit Margins of 32% for FY 2010.

I believe SGA can take up 10% in China, at least that was the impression I got from reading some articles about how US isn't going to start competing with China in manufacturing even if the Yuan appreciates due to the small proportion of labour costs in China Manufacturing.

Having said that, 37% or 30+% to grow and package vegetables seems ridiculously high to me. Anyone know of any comparable companies from other countries?

The numbers are incredible, 37% margin for selling just vegetables. S$ 50 mio in profit in 1 quarter is so lucrative, maybe I should change job to sell vegatbles...haha

[cif5000]

Having said that, 37% or 30+% to grow and package vegetables seems ridiculously high to me.

Commenting as a retired farmer, I think it is meaningless to use GAAP margins to evaluate a farming business. As a farmer, the most important things are: (1) output per area, and (2) selling price. Costs are very much predictable and controllable. When you get a good harvest and a good market, your GAAP margins explode. In a bad year, there might not be any revenue. On average, the risk should be compensated.

Minzhong is more "sophisticated" and is not a pure farmer.

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I forgot to state the obvious. The farmer has no control over both the output and selling price.