Asia Pacific Equity Research
25 August 2010
China Minzhong FoodCorporation Limited
CMFC.SI, MINZ SP
FY10 results: higher ASP drives revenue growth
Price Target: S$1.60
SingaporeFood & Food Manufacture Ying-Jian Chan
(65) email@example.comJ.P. Morgan Securities Singapore PrivateLimited
(852) 2800-8559 firstname.lastname@example.orgJ.P. Morgan Securities (Asia Pacific) Limited
CMFC.SI share price (S$FTSTI (rebased)
YTD1m3m12mAbs 5.8%-2.3%12.4%5.8%Rel 4.9%-0.8%5.1%-6.1%
China Minzhong Food Corporation Limited (Reuters: CMFC.SI, Bloomberg: MINZ SP)
Rmb in , year-end Jun FY08AFY09AFY10AFY11EFY12E
Revenue (Rmb mn) 6341,0581,4231,8462,397Net Profit (Rmb mn) 217.4288.1367.5483.0634.2EPS (Rmb) 0.400.520.670.881.16EPS (Recurring) (Rmb) 0.330.510.700.881.16DPS (Rmb) 0.000.000.000.000.00Revenue growth (%) 42.4%66.9%34.5%29.7%29.9%EPS growth (%) 82.9%32.5%27.6%31.4%31.3%EPS (Recurring) Growth 101.9%53.9%37.1%26.2%31.3%ROE 36.8%33.8%22.4%19.1%20.5%P/E (x) 16.012.19.57.25.5P/BV (x) 126.96.36.199.31.0Dividend Yield 0.0%0.0%0.0%0.0%0.0%
52-week Range (S$) 1.35 - 1.09Mkt Cap (S$ mn) 697.33Mkt Cap ($ bn) 0.50Price (S$) 1.27Date Of Price 24 Aug 10Free float (%) 56.4%3-mth trading volume (mn) 1.073-mth trading value (S$ mn) 1.303-mth trading value ($ mn) 0.19FTSTI 2,923Exchange Rate 1.36Fiscal Year End Jun
Source: Company data, Bloomberg, J.P. Morgan estimates.
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Earnings ahead of expectations
: Excluding fair value losses of Rmb15million, core net profit of Rmb383 million (+37% Y/Y) was 13%/5% aheadof JPM/consensus estimates. GP margin remained steady at 40.4%. Cashconversion cycle improved from 75 days in FY09 to 61 days in FY10largely attributed to shortening of inventory turnover days. Champignonmushrooms, capsicums and German chives remain the top 3 productscontributing 34%/12%/9% of group sales. The strong result was driven byboth strong volume and higher ASP. Yield per mu continued its uptrend,which we estimate increased by 48% to c.Rmb17,618 due to continual shiftin product mix to higher value product e.g. king oyster mushroom.
Processed vegetables – higher ASP but weaker margin
: Processedvegetables revenue/GP was +33%/+17.4% Y/Y on the back of 35.4%increase in ASP. However, sales volume declined 2% due to changes inproduct mix which saw lower fresh-packed vegetables volume. Highervolumes of brined products led to GP margin declining from 37.3% to32.9%. Processed vegetables account for 68%/55% of FY10 revenue/GP.
Fresh vegetables – Stronger volume and margins
: Fresh vegetablesrevenue/GP was +37.7%/+67.5% Y/Y driven by 24.8% volume increaseand 10.4% increase in ASP. GP margin improved from 46.1% to 56%.Fresh vegetables account for 32%/45% of FY10 revenue/GP. Its plantationswere unaffected during the recent floods in China due to their locations,which allowed Minzhong to partly benefit from the higher vegetable spotprices for it non-contracted production volume (~20% of total production).
Planting to accelerate in FY11E
: Total planted area was only 1,850muhigher than FY09 due to deliberate slowdown during the downturn.Management maintains its planting target of 90,000mu over the next 3 years.
Raised PT and earnings estimates
: We believe Minzhong will be able tocontinue delivering ASP and volume growth with its organic/GAP certifiedproduce favored by its export customers as well as domestic consumers whoplace great importance on food safety. We raise our FY11E/FY12E earningsestimate by 13%/12% and raise Jun-11 PT to S$1.60.