S$0.26-YAMA.SI
The company has entered into agreements with 3 parties representing Villagers’ Committee of Zhangping City, Fujian Province to lease shiitake mushroom cultivation bases measuring 842 mu for a period of 17 years, increasing their cultivation base from Apr ’11’s 4292 mu to 5134 mu.
Including the 1,678 mu of new cultivation base secured in Apr ’11, this would effectively almost double their cultivation base from last year’s 2614 mu.
As the cultivation period does not start till Sept this year, positive contributions from the newly leased farmland can only be seen in the later part of this year.
With the close to doubling of their cultivation base this year versus 33% in 2009 and 18% in 2010, management is optimistic of their financial performance going forward.
This is especially so as they expect overall group gross profit margin to be enhanced due to increased contributions from higher margined shiitake mushrooms.
The amount to be spent on the newly leased farmland of $2.3mln is in line with management’s previous guidance.
And following in China Minzhong’s footstep, the company is also disclosing the exact locations of their newly leased farmland and the lease tenure period.
While the next 2 reporting periods will be low seasons for the group, we believe they will still report decent yoy performances given the low base effects last year coupled with some spill over effects due to the late winter and harvesting periods this year.
And with the stock having fallen close to its all time trading low of 24 cents, currently trading at 26 cents and with its PE of 4x against growth of 20-30% as well as China Minzhong’s 8x, we are upgrading to BUY.
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