The Edge did a positive write-up on the agricultural
sector in China, basically arguing that the Chinese
government is promoting self-sufficiency in producing
her own food crops, the big cost advantage that is
still inherently present in China’s vegetables sector
which accounts for 55% of the world’s annual
vegetable production and that both China Minzhong
and Sino Grandness is expanding production capacity,
labour and farm land to meet the strong demand in
the years ahead.
We have a buy recommendation on China Minzhong
and the reasons have been cited in our notes issued
on 8 and 14 Sept ’10.
We are recommending a BUY as well on Sino
Grandness as we understand that the company will
be doing a voluntary quarterly reporting in the
upcoming 3Q ended Sept ’10 results.
We believe this upcoming set of results would be
very strong due to maiden contributions from their
fruit and vegetable drinks business which management was quoted in The Edge as saying that
this new business segment will grow exponentially.
From zero, management expects this new business
to account for a significant 25-30% of this year’s
sales. Sino Grandness has built a new plant in Hubei
to grow this new business which caters to the
domestic market.
Management is targetting Rmb200mln sales in 5 years
from this new business. The Chinese government
is promoting domestic consumption in China and
as fruits and vegetables is a healthy food source,
management intends to ride on the strong growth
outlook going forward.
The company is also expected to benefit from US
and European markets where consumers trade
down to buy more in-house supermarket brands
as the global economic environment remains
uncertain.
Valuation is also undemanding at 4x PE.