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China Minzhong: Accumulate on weakness.

Friday, November 2, 2012

There are a few stocks which I would like to accumulate on weakness in the near term. China Minzhong is one such stock.

Many like Jim Rogers have put forth a convincing case of an impending food crisis. In the event of global food shortages, it is logical to expect food prices to rise. So, investing in food producers seems to make good sense.

Improving numbers, insider buying, an experienced management and the right industry, I believe China Minzhong is a good company to invest in. Also, there could be more positive catalysts and these could push its share price higher.

After hitting a low of 53c in early June, its share price rose to hit a high of 87.5c on 19 Oct. That is a meteoric 65% increase in a short span of 4 months.

The daily chart is showing some fatigue. Some consolidation is to be expected. The immediate support is at 78c. If that should go, next supports are at 74c and 70c. The MACD which is a pure price oscillator suggests that supports could continue to be tested. However, the Chaikin Money Flow does not show any significant outflow of funds which suggests that long holders are not in any hurry to sell. We could see share price doing what Daryl Guppy calls a correction using time which means people waiting on the side hoping to get back in when there is a price correction could be disappointed.

The weekly chart shows quite clearly that the downtrend has reversed. Breaking immediate support could see share price declining to test the 20w MA in the longer term. This currently approximates 71c. As the 20w MA is rising, the longer term support would be a higher value over time. The declining 100w MA, currently at $1.10, could cap any further price increase in the near future.

Buying when there is a test of supports with longer term MAs rising seems like a good idea. However, remember, TA shows where the supports and resistance are but it does not mean that they will be tested.

Related post:
China Minzhong: Opportunity in slowing momentum.

“If food inflation in China remains high, there is a high chance that the management’s revenue target (of 15% growth) could be surpassed.” Maybank-KE keeps a Buy call with $1.16 target. Read full article in The EDGE.


Ah John said...

Hi AK, I think you can read Chinese, here is an article to share:

AK71 said...

Hi Ah John,

My command of the Chinese language, especially the written form, is rather weak. I have taken a look at the website. I think it is about Buffet's methods. Thanks. :)

opal said...

AK, are you focusing on companies listed only in Singapore? If not, you can take a look at agri related companies listed in US such as potash or ETF like MOO

AK71 said...

Hi opal,

Yes, the Singapore market keeps me busy enough. Thanks for the suggestion though. :)

AK71 said...

China Minzhong Food Corporation said net profit for the first quarter ended 30 September 2012 (1Q FY2013) increased 30.6% to RMB121.6 million ($23.9 million), compared to RMB93.1 million in the previous corresponding period.

China Minzhong posts 30.6% rise in Q1 net profit to $24m .

AK71 said...

Reiterate BUY. We believe Minzhong’s share price is deeply undervalued at current 2.86x FY13 PER. We are confident Minzhong’s free cash flow will turn positive this year and the stronger balance sheet makes some dividends payment or share buyback possible. Re-rating can be expected if such practices materialize.

KimEng, 15 Nov 12.

Ray said...

wow, CMZ shed 70cents today.
Can't find any news to link to this drop.
AK, did u hear anything?

AK71 said...

If it were a 70c decline, I would either go mad with joy or sorrow. Hahaha... ;p

Fundamentally, I do not know of any reason for the decline.

Technically, the negative divergence between price and MACD is playing out on the daily chart. The weekly chart shows a rising 20w MA which is at 76c and this was tested as support this morning.

Ray said...

haha oops. sorry. 7 cents.
so are u accumulating more?

AK71 said...

Hi Ray,

I am very tempted, to be honest. However, I have reached a self imposed limit on how much I will invest in the company. Unless, value is much more compelling, I won't be adding.

Ray said...

Hi AK,

Managed to find some info on the drop.

"Shares of China Minzhong Food Corp fell as much as 10.6% on Thursday, after a block trade fuelled speculation one of its largest shareholders had sold its stake in the food processing firm.

China Minzhong, which is 16.9% owned by sovereign wealth fund Government of Singapore Investment Corp, was trading down 8.2% at $0.78 at 10:25 a.m/. It was the most actively traded stock by value. In an earlier block deal, one party sold 57.23 million shares at $0.80 each.

A trader said one of China Minzhong’s shareholders had sold its entire stake in the company through a private placement.

According to Thomson Reuters data, Olympus Capital Holdings Asia, is the company’s third largest shareholder, with 57.23 million shares or a 10.3% stake.

Franklin Templeton Investments Corp is the second largest shareholder with a 12.2% stake, or 68.13 million shares.

China Minzhong was not immediately available for comment."

AK71 said...

Hi Ray,

I read this just an hour or so ago. Haha.. You have been busy investigating, I see. ;)

I think this is probably a good opportunity to get some, especially if the support at 70c should be tested. However, if the double top formation is valid, we could see a downside target of 62c.

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