S$1.195-CMIN.SI
The key point at last Monday afternoon’s analyst briefing was that based on their order books currently on hand from their major customers, management is comfortable with current consensus expectations of another 27% earnings and 35% sales growth to Rmb717mln and Rmb2.6bln respectively for full year ending June 2012.
The growth drivers would be positive contributions from 21,366 mu of new farmland acquired last year, raising their total farmland to 58,627 mu, doubling in cultivation capacity of higher margined king oyster mushrooms (gross margins of 50-60% versus group average of 30-40%), maiden contributions from new and higher margined black fungus, increased contributions from higher margined organic vegetables and the ramp up of their newly acquired processing capacity.
In terms of cash flow management, management revealed at the briefing that by Aug 2011, they have already collected the bulk of their trade receivables of Rmb230mln and due to the government’s promotion of the agriculture sector, they have another Rmb300+mln of bank lines available and the government would reimbursement them a good part of their interest payments via government grants. Hence, management sees no problem in having to fund another Rmb400-500mln of capex this year.
Besides listing in their annual reports the exact locations and tenure periods of their land leases to promote greater transparency, management also disclosed that they are currently in the midst of planning to upgrade their auditors to one of the big 4 to differentiate themselves from their Hong Kong listed peers. If successful, it would raise the corporate governance standards of the company.
Management will also be attempting to get a share buy back mandate in their upcoming AGM in Oct ’11 in the hope of executing it to help arrest the rapidly falling share price.
We are maintaining our BUY recommendation on the stock.
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