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China Minzhong: Pushing higher.

Sunday, August 5, 2012

To any chart watchers, it is obvious that China Minzhong's share price has broken out of resistance.  From here the immediate resistance is provided by the declining 100dMA which is currently at 73c. It could approximate 72c in the next few sessions.




Overcoming the 100dMA could see a test of resistance provided by the 200dMA which is also declining but more gently so. The 200dMA is at 83c. The last time the 200dMA was tested was earlier this year in February.

With all the momentum oscillators up sharply, the worst is over for China Minzhong's share price, it would seem. MACD suggests a return of positive momentum. MFI suggests demand is stronger. OBV suggests robust and continuing accumulation.

It has to be said that a longer term downtrend that started in early 2011 is still intact. So, traders ought to be careful and watch the longer term resistance.

Related post:
China Minzhong: Crossroads.

18 comments:

Ray said...

Hi AK,

Any thoughts from FA p.o.v?
Near term wise, I think China's slowing economy does not bode well with CMZ and Wilmar, so any upside would be short termed and a long term downtrend looks more likely. It could be sideways trending but with the current bear market, everything will be dragged along.

JCK said...

AK

Thanks for the chart.
Sold 70% holdings at 0.67.

Wonder what the fast stochastics and RSI says?

AK71 said...

Hi Ray,

If you are concerned with the slowing Chinese economy and how it could affect China Minzhong's business, you are taking the top down approach in FA.

If you are looking for trends in share price, you are employing TA.

You have to reconcile these approaches and decide on your strategy accordingly. :)

AK71 said...

Hi JCK,

I have already employed MFI in this instance which is also a momentum oscillator. The MFI looks at volume and price, giving a more accurate picture of demand (or the lack of it).

AK71 said...

Industrialised farming would allow Minzhong enjoy lower costs, higher yields and better product quality vs. competitors if labour costs in China keep rising, strengthening its pricing power in the long run. Climate-controlled cultivation enables Minzhong to grow vegetables even during off- season, resulting in higher ASPs.

Currently, the revenue split between “Process” (for foreign markets) and “Cultivation” (for the domestic market) is roughly 65-35. Going forward, management expects this ratio to gradually move towards 50-50. A more balanced revenue split would not only reduce default risks of European counterparties’ given the financial difficulties that many European companies now face, but also improve overall gross margins.

BUY maintained. We reiterate our BUY call with an unchanged target
price of SGD1.16 after the company visit. The risk-reward profile of
Minzhong is very attractive now, we believe. In our view, moving
towards industrialised farming will not only see Minzhong gain an edge over its competitors but also somewhat ease investor concerns on
corporate governance issues surrounding the whole S-chips sector.


Kim Eng, August 2012.

Ray said...

lets hope they are right.
my loss for CMZ almost recouped already...
same cant be said for wilmar though... :(

AK71 said...

Hi Ray,

My long position in China Minzhong is now in the black, actually. The technicals suggest that the worst is over and OBV shows ongoing accumulation. As long as this picture is unchanged, any dip in its share price could see buyers coming back. So, I am rather optimistic.

As for Wilmar, there is no sign of accumulation as the OBV is still down. However, Mr. Market bought the recent gap down which, together with the higher low on the MACD, suggested to me that the selling momentum could start petering off.

It is hard to be precise with TA but we can get a sense of the sentiments in the market. :)

JCK said...

Lets VISIT! :)

AK71 said...

Hi JCK,

One day, when I am retired, I might just go visit places where businesses I have significant investments in have their operations.

I would like to see the apartment buildings which are owned by Saizen REIT, for example. ;)

JCK said...

Pushing Higher! :)

Looks like its pushing for 83 cents....closed at 75 cents

AK71 said...

Hi JCK,

Looks promising. :)

AK71 said...

China Minzhong Food Corporation, the integrated vegetables processor, reported a 76.4% jump in fourth-quarter net profit to RMB 171 million ($33.7 million), from RMB96.9 million a year ago.

Revenue for the quarter also rose 93.1% to RMB803.5 million, from RMB416.1 million, as a result of sales rollover due to a delayed winter and corresponding late start in the operating peak season.

Full-year net profit was RMB679.6 million, up 19.9% compared to RMB566.7 million in FY2011 as full-year revenue rose 33.2% to RMB2.6 billion from RMB1.9 billion last year.


The EDGE, 27 Aug.

Ray said...

pls explain to me why the price dropping today. LOL

AK71 said...

Hi Ray,

Ah! Explanation for daily price fluctuations would be best given by Mr. Market. Would be nice if I had his phone number. ;p

Ah John said...

Sigh. When can see 0.80 again. Btw, china market drops a lot.

AK71 said...

Hi Ah John,

It will happen when it happens. I wouldn't fret about it. :)

AK71 said...

China Minzhong delivered strong fiscal-4Q12 results, with revenue up 93% on-year and EPS up 77% on-year, Macquarie says, noting the results beat its forecasts by 40%.

“When Minzhong missed 2Q and 3Q, management argued that the miss was due to a late growing season, particularly on the mushrooms. This argument appears to have been borne out as fresh-vegetable revenues (traditionally strongest in 3Q) surged 39% quarter-on-quarter and 156% year-on-year.”

It notes fresh-vegetable revenue was also helped by rising productivity on land added in FY11, with most of the new land only reaching its full yield over the next three years, offering a reliable structural growth driver.

But while 4Q12 fresh-vegetable gross margin rose on higher prices, this hurt processed-vegetable margins, it notes. Macquarie keeps an Outperform call with $1.40 target; it raises its FY13-14 EPS forecasts by 4%-6%.

“Minzhong is a significantly lower risk investment than other PRC agriculture plays. At 3.1x trailing PER, 0.5x P/B, 18% ROE and healthy balance sheet, the stock is deep value.”


Dow Jones & Co, 28 Aug 12.

AK71 said...

Account receivables should not be a big issue. A sharp increase in account receivables was a concern before the results. However, the situation is better than expected. Although account receivables remained high at RMB967m in FY12, Minzhong actually has managed to collect around RMB220m since end FY12 and we do not think there is any material default risk associated with the remaining receivables.

Expecting higher yield even without adding more farmland. Yield
per mu increased significantly in
FY12, mainly because the farmland
that Minzhong acquired two years ago is approaching optimum yield. Thus, we expect higher production volume going forward even without
adding more farmland.

Positive free cash flow and dividends this year? We expect higher operating cash flow and less Capex in FY13, thus the first positive free cash flow in three years. We cannot rule out the possibility that Minzhong will pay dividends or buy back shares in FY13. Although we have not put in any dividends payments or share buyback forecast as our base case, we believe such actions will boost the valuation if they eventuate.

We maintain our BUY call with unchanged target price of SGD1.16 pegged to 4.35x FY13 PE.


KIM ENG, 28 Aug 12.

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