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China Minzhong: Gap down black candle day.

Thursday, December 6, 2012

China Minzhong's share price gapped down today and formed a long black candle on the back of very high volume.

Apparently, "one party sold 57.23 million shares at S$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 per cent stake.

Franklin Templeton Investments Corp is the second largest shareholder with a 12.2 per cent stake, or 68.13 million shares." (Source: REUTERS, 6 Dec 12.)

I do not know why the investor decided to sell especially when the fundamentals of the company have been improving. However, if there is no material deterioration in fundamentals, this correction is an opportunity to accumulate shares of the company cheaper.

Technically, the negative divergence between the share price and MACD is playing out. So, it is not as if we didn't get some kind of warning. However, the intensity of the decline has been stunning.

I decided to draw a Fibo Fan and it is interesting to see how nicely the 38.2% Fibo line approximates the rising 100d MA. 38.2% is a golden ratio but with such a high volume sell down today, we could see persistent weakness tomorrow. If immediate support should be compromised, then, we could see a test of the next two golden ratios of 50% and 61.8% for support.

Related post:
China Minzhong: Accumulate on weakness.


Ray said...

CMZ trading halt.

AK71 said...

Its share price was recovering quite nicely before the trading halt. Could be to confirm the sale of shares by its 3rd largest stakeholder.

AK71 said...

Singapore, 07 December 2012 – China Minzhong Food Corporation Limited (中国闽中食品 有限公司) (“China Minzhong” or “Company”) (SGX: K2N.SI; Bloomberg quote: MINZ SP),
today announces the purchase of 57,231,618 shares (approximately 10.3% of the total issued
share capital of the Company) by institutional funds and high net worth investors (“HNWIs”)
through a vendor shares placement from Olympus Capital Holdings Asia (“Olympus”) - a private equity fund, at a placement price of S$0.80 per share.

Olympus invested in China Minzhong since 2006 and has been supportive of the Group’s developments over the past 6 years. However, given the closed end nature of private equity funds, it is a natural progression for private equity firms to liquidate their investments post IPO and return capital to their investors. The placement has also helped alleviate the “share overhang” issue on the Company and brought in new institutional and HNWI shareholders for the Company’s net phase of growth.

Commenting on this, the Group’s Executive Chairman Mr. Lin Guo Rong (林国荣) said, “We will like to extend our appreciation to Olympus, whose past investment was critical to the establishment of our Sichuan and Shanghai subsidiaries as well as the ramp-up of our 2
champignon mushrooms business. Today, we are pleased to be one of the top exporters of champignon mushrooms in PRC. We will also like to specially thank Olympus for its valuable guidance and strategic advice to the Company over the years. Our senior management team
has also taken the opportunity of this placement exercise to increase our shareholdings as a vote of confidence in China Minzhong’s future prospects.”

For the 1st quarter ended 30 September 2012, China Minzhong has reported a 30.6% growth in its 1QFY2013 net profit to RMB121.6 million, on the back of a 69.7% rise in revenue to RMB613.4 million. Net operating cash flow also increased 85.2% to RMB226.3 million, with cash and cash equivalents amounting to RMB302.0 million at the end of the financial period.

Ray said...

em.... nothing new right? just confirming what we already knew... so is the 3rd largest shareholder selling shares a bad news?

AK71 said...

I have always believed that insider buying is more significant than insider selling. An investor can sell for many reasons but to buy can only have one reason. ;)

This private equity fund has probably made a lot of money for its investors and now they want to cash out. That there are other investors waiting to buy in at 80c, the offer price, is good news.

The fundamentals of the company are improving and I won't sell my stake when we are at the inflexion point. No more capex. Reaping the benefits of earlier capex. Cash flow and cash on hand increasing. Do you want to sell now?

If Mr. Market goes crazy again and decide to sell at even lower prices, I would be sorely tempted to add to my long position, self imposed limit not withstanding!

Ray said...

thanks AK for sharing your thoughts.

AK71 said...

Anytime, Ray. :)

I am hopeful that this investment will be a very rewarding one.

AK71 said...

China Minzhong up after funds, investors buy 10.3% stake.

AK71 said...

Olympus Capital, a private equity fund, has sold its entire stake of 57m shares in China Minzhong through a private placement last Thursday at SGD0.80 per share.

In our view, this placement is a positive for Minzhong as it removes a long-term share overhang on the company without adding too much selling pressure in the open market.

In a show of solidarity, management took advantage of the vendor share placement to increase personal stakeholdings. This clearly signals management’s confidence in the company’s fundamentals and the attractiveness of its share price.

We continue to like Minzhong for its growth prospects. We are looking at an average of 15% EPS growth for the next three years. As it stands, Minzhong’s share price is deeply undervalued at the current 2.9x FY13F PER. Reiterate BUY with the target price unchanged at SGD1.16.


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