(BUY, S$0.93, TP S$1.38)
1QFY12 net profit of RMB93m (+78% y-o-y, -3% q-o-q) was ahead of our RMB80m projection due to MINZ’s continued pursuit of a higher value product mix that saw a) a 37% revenue increase to RMB361m on strong fresh and processed vegetable growth and b) a 8ppt GPM gain to 41%. However, we note a cautious management tone during the results briefing, with a scaling back of its planned FY12F capital expenditure to ~RMB500m from RMB1.9b in FY11 to manage its working capital needs. In general, we welcome this decision as new farmlands are capital intensive and make minimal contributions in the initial years. We revise down our FY12/FY13 farmland expansion assumption to 5,000 /20,000 mu (old: 26,000/26,000mu) – resulting in -5% and -12% lower output respectively – but adjust up our assumed GPM by 3ppt and 2ppt supported by higher margin crops. Our corresponding FY12 net profit estimate remains at RMB768m but that of FY13 is revised down by 3% to RMB1,068m. We expect headwinds from an uncertain USA/Europe demand and share overhang to remain and hence, reduce our target multiple to 5x FY12F PER (old: 6x) and derive a lower TP of S$1.38 (old: S$1.68). Maintain BUY.
37% top line growth. Fresh and processed vegetable grew 26%/94% to RMB157m/RMB133m respectively. Fresh vegetable ASP and volume improved by 37% and 42% to RMB4,100/tonne and 38,200 tonnes on a better product mix and a larger land area. Due to shift towards a higher-value portfolio, processed ASP increased 54% to RMB22,800/tonne although volume contracted by 20%.
8ppt GPM gain to 41%. Fresh and processed vegetable GPM gained 6ppt and 11ppt to 51% and 45% respectively. This is driven by strong revenue growth from the higher margin black fungus and king oyster mushroom, which were up about ten and three times to RMB43m and RMB27m respectively.
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