Background: Synear Food Holdings produces quick-freeze products, such as savoury and sweet dumplings, desserts and snacks, which are sold in more than 20 provinces in China. It owns two production facilities in Chengdu and Huzhou. The stock traded at a peak of $2.35 per share in 2008 but has never regained such levels or volumes since.
Recent development: Although sales rose by 4.1% YoY in 2Q11 thanks to the Dragon Boat Festival, Synear reported a 40.6% drop in net profit to RMB54.2m. The decline was caused by higher inflation rate affecting raw material and labour costs. Net profit margins dipped slightly from 27.5% to 25.9%.
Key ratios…
Price-to-earnings: 8.4x
Price-to-NTA: 0.3x
Dividend per share / yield: S$0.0017 / 1.3%
Net cash/(debt) per share: RMB0.60
Net cash as % of market cap: 82.4%
Share price S$0.137
Issued shares (m) 1375
Market cap (S$m) 188.4
Free float (%) 54.0%
Recent fundraising activities Apr 2007 – Placement shares 125m at S$1.85
Financial YE Dec 31
Major shareholders CEO Wei Li (33.3%), Peng Wang (12.7%)
YTD change -41.7%
52-wk price range S$0.115-0.285
Our view
Longer credit terms. During the global financial crisis, Synear extended its credit terms to major distributors from 30-90 days to 60-90 days. It granted another extension again in 4Q10 to 90-110 days. Most of these distributors, who distribute to supermarket chains like Carrerfour, Wal-Mart Supercenter and Metro Cash & Delivery, are said to have more than 10 years of business ties with Synear. Trade receivables have racked up from 132.5 days to 145.1 days (+9.5% YoY).
Marketing efforts noticed. Part of Synear’s efforts to improve brand visibility is the appointment of popular Chinese actor Tong Dawei as its spokesperson. It hopes thus to capture more market segments in China
S-chip turnaround. Although Chinese companies listed here have had their reputation shaken due to reports of financial discrepancies, there is a new trend toward privatisation of S-chips which have strong brand visibility in China as well as a vast distribution network. Nestle-Hsu FuChi is a case in point.
Inexpensive valuations. Synear has said that it will postpone the commencement of operations at its new plant until market conditions become more favourable. The stock currently trades at historical PER of 8.4x and P/B of 0.3x, which are relatively undemanding.
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