Aug 26, 2010
The Business Times

China Minzhong aims higher after notching 27.6% profit jump

Firm banking on better farm yield, organic vegetables

CHINA Minzhong yesterday posted a 27.6 per cent jump in net profit to 367.5 million yuan (S$73.5 million) for the year ended June 30 – its first reported earnings post-IPO – and is now gunning for even stronger earnings for the current financial year.

Revenue grew 34.5 per cent to 1.42 billion yuan on the back of higher sales, in both processed products and fresh vegetable produce, and higher selling prices as the group continued to shift towards higher-value products in both segments.

Key earnings drivers for fiscal 2011 will be improved yield of existing farmland, an increase in farmland area, and organic vegetables coming onstream significantly, China Minzhong chief financial officer Ryan Siek told BT yesterday.

"And of course, we are seeing a recovery of orders in US and Europe and demand in China."

He sees an even bigger jump for fiscal 2012 when the IPO proceeds are fully deployed.

For the fourth quarter of fiscal 2010, however, China Minzhong posted a 2.1 per cent dip in net profit to 72.94 million yuan as it incurred higher selling and distribution costs, and administrative expenses.

Revenue, on the other hand, rose 18.5 per cent to 286.2 million yuan.

Earnings per share on a fully diluted basis for Q4 came to 0.13 of a yuan, down from 0.28-yuan.

As at June 30, China Minzhong has a cash hoard of 1.17 billion yuan, up from 203.7 million yuan a year ago. No dividend has been declared.

Mr Siek explained that the group plans to deploy its IPO proceeds – which is currently 40 per cent utilised – for further expansion over the next two to three years.

These IPO proceeds would be used to fund the expansion of farm land by 90,000 mu and raise production capacity by at least three times from current levels in the next three years.

While downside risks are emanating from further global slowdown, rising labour costs and foreign exchange risks, Mr Siek said that the group is in an industry where demand is stable and its dominant position among China vegetable exporters allows the group to pass on the higher costs to consumers.

Moreover, the export-oriented group has short and long-term strategies to cope with margin pressures, he added.

In the short-term, it is seeking to allocate more sales to export distributors to which the group bills its sales in yuan. For fiscal 2010 ended June 30, revenue from export distributors accounted for 49 per cent of total revenue, up from 36 per cent for fiscal 2009.

In the medium term, the group is shifting into higher-value products and notching more sales domestically, which is expected to drive domestic sales to close to half of group revenue in five years, up from the current 34 per cent. In the longer term of 5-10 years, the group will mull the setting-up of plantations and factories outside of China.

Asked about the prospect of undertaking a dual-listing, Mr Siek said that the group has been approached by financial houses from Taiwan, South Korea, the US and Hong Kong.

"We have not signed any mandate. We are still trying to understand the pros and cons," he said. Yesterday, China Minzhong shares closed one cent higher at $1.28.