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Mr. Market certainly likes the news that Indofood has become a substantial shareholder of China Minzhong. Like a child on a sugar high, its share price rushed upwards today.
I did another partial divestment as share price closed the gap at $1.20. This tranche which was divested had shares which were purchased in June last year at 55.5c a piece. So, the ROI is pretty high.
Together with the tranche of shares I divested last month, I have in total sold about 60% of my investment in China Minzhong. With the gains from these divestments, it also means that my remaining investment in China Minzhong is "free".
Will China Minzhong's share price continue to rise tomorrow? Only Mr. Market has the answer.
If share price should progress higher, watch those golden ratios.
138.2% is at $1.30.
150% is at $1.37.
161.8% is at $1.435.
Related posts:
1. China Minzhong: Indofood is a new substantial shareholder.
2. China Minzhong: 2Q FY2013 stellar results.
Bloggy Award
26 comments:
"Despite the dilution in EPS due to the enlarged share base, we believe China Minzhong can leverage on Indofood's strength and experiences to accelerate its growth," says Maybank-Kim Eng in a note.
"With the support from this strategic shareholder, Minzhong could not only expand its revenue by supplying raw materials to Indofood, but also leverage on Indofood's distribution network to march into a fast-growing Southeast Asia market."
Based on Indofood Sukses' track record of preferring majority control, it also expects the Indonesian company is likely to acquire more shares in the open market or from other big shareholders, such as GIC, which owns 14.4% of Minzhong post-placement.
It raises Minzhong's target to $1.36 from $1.16 after increasing its revenue forecasts for the next three years by an average 14%.
Dow Jones & Co, Inc
18 February 2013 16:05
The endorsement from a leading food company in the region will likely raise market confidence in China Minzhong, which has hitherto been trading at low P/E multiples of 3-4x due to market skepticism over S-chips in general and the bust-up of its larger sector peer
Chaoda Modern over questionable accounting practices.
China Minzhong recently reported a strong set of 2QFY13 results, with net profit growing by 24% to RMB 216m, while half time earnings came in at RMB268m (+26% y/y).
OSK Research, 18 Feb 2013.
Dilution of 13% and price run-up of 18%, so it is a premium of 31% mr market is giving cmz. Probably the exuberance is over extended and giving the low PE of food business, is mr market over bullish here, only time will tell.
After Indofood’s entry, GIC’s stake will be diluted from 16.91% to 14.37% while Templeton’s stake will be diluted from 13.05% to 11.09%.
Indofood’s 14.95% stake would make them Minzhong’s single largest shareholder.
Without factoring in potential profit upside from the new funds, the 14.95% dilution will see Minzhong’s June 2013 PE increase from 3.6x to about 4.1x.
But management said at this mornings conference call that over the next few months, they expect positive earnings per share announcements to help offset this
dilution.
With the addition of Indofood as the largest shareholder in Minzhong and one who is able to add
strategic business value and also provide market confidence in this S-Chip, the 14.95% new share
dilution at a 10% discount is unlikely to be too much of a concern.
Lim & Tan, 18 Feb 2013.
The new shares will dilute our FY13 EPS by 15%. We are cutting our
FY13-14 EPS by 8-15% to factor in the dilution.
Our target price (4x FY14 P/E, sector average) dips accordingly. Benefits could accrue, earliest in FY14.
The S$89m raised will strengthen Minzhong’s ability to pay dividends
this year. We keep our Outperform on the back of this possibility.
Target: $1.24
Previous Target: $1.35
CIMB, 18 Feb 2013.
Hi seefei,
Could you be hinting that you are putting in an overnight sell order now? ;p
Hahaha No AK. My holding is small, so looking for any weakness to accumulate.
Got some at 98 and was waiting for further weakness. Well that didn't materialize.
Hi seefei,
With what I can remember from your comments so far, I get the impression that you are a long term investor. So, I guess it is the same with China Minzhong for you. :)
Wish i had yer patience!
Missed a BIG one here for fast profits! :(
Hi JCK,
If only I had Warren Buffet's patience. Then, I wouldn't have sold at all and would make even more money now. ;p
I guess we are better off than Prudential who sold as share price plunged. Templeton were the smart ones as they bought in big time back then. They are laughing now.
Seefei, you got the weakness you wanted..
came back down to 1.15. More weakness to come?
Sianz, didn't sell at 1.2... was hoping it chiong abit more today... lol...
Hi Ray,
It did touch a high of $1.22, didn't it?
The run up was too steep, I guess. Bulls need to take break. ;)
ya it did went up to 1.22 but this morning i was too busy to monitor the market. by the time i did, it is already at 1.155 :( sell now and make less profit? haha hate that feeling... im a believer that the trend is up! :)
Hi Ray,
It would be nice to see those golden ratios I identified tested. ;p
On the question why Indofood only acquired 14.95% of China Minzhong, management shared with investors that according to SGX rule, an EGM needs to be held before any entity buys more than 15% of a company’s shares in the first block. Management also did not rule out the possibility that Indofood would buy more shares in the future.
Investors were also keen on Minzhong’s industrialised farming model. Management explained to us that the industrialised farming could significantly reduce the company’s reliance on labor and increase the yield. Facing the continuously rising labor cost, this business model could potentially give Minzhong certain competitive advantage.
Most of the investors were keen on the dividends policy of the company.
The management suggested that they were planning some dividends in
FY6/13 but the amount were not decided yet.
Source:
Maybank KimEng, 21 Feb 13.
Another substantial holder divested. Share price (surprisingly) initially soared to 1.27 but then tumble down. Market is reacting quite strangely where 1 piece of news is interpreted differently by different people.
Hi Ray,
The fact that share price did not tumble even though a substantial shareholder divested fully says something about Mr. Market's demand for the company's stock. :)
However, Tetrad Ventures is owned by GIC. So, this means that the Singapore government no longer has an interest in China Minzhong.
Hi AK71,
i'm a noob, could i seek your advice. i just sold all my 12 lots in CMZ at 1.20 (OH MY I MISSED THE 1.26 AND WAS SO WANTING TO SELL THEN!)
Indofood objective is not known. Whether it is to privatise CMZ in the short term, or to just hold a board seat in CMZ and just have a cooperation between the two firms.
in my opinion, the way things are going for the first scenario are bad. They seem to be bargain hunting, ensuring they get things at the cheapest price possible. First, shares at $0.91, 14% below trading price. Second lot of shares at $1.12, 10 cent below trading price. They do not seem to be buying it base on P/E or P/B. they might very well offer a lower than trading price to minority share holders.
Further, for some reason, CMZ directors and GIC does not seem to think the price they have sold their shares as being undervalued. Profiting 55 cents per share as GIC may already have, why not have more by selling it at a higher price? but some how they don't think. they sold GLP at 15x.
If indofood is just out to get a cooperation between the two firms and stop their share purchasing drive, there might still be a chance their objective are not aligned. indofood deals with alot of low value high volume food if i am right, cmz is trying to go for high value low volume food. Having already own so much of their shares, 30%, indofood with board seats, might instead be diverting resources that benefits the indofood corporation, but not us minority shareholders...
do you have opinion on how i'm seeing this whole indofood thingy?
thank you for your kind time in reading and sharing... : )
yours sincerely,
a boy who lost 2.2k in olam but earned 2.4k in cmz.
Hi tostubi,
I am sure that Indofood has thought through its strategy carefully before amassing a stake just shy of 30% in China Minzhong.
What might Indofood's strategy be? That one, I really cannot say for sure although one could certainly make a few guesses like you have done. :)
Like you have said, Indofood is certainly bargain hunting. Even at $1.20, from a PER perspective, China Minzhong's stock valuation is inexpensive.
If Indofood should continue accumulating shares of China Minzhong, it could trigger a mandatory offer. Then, it would be clearer as to their intentions.
A serious consideration to privatise the company would probably see an offer at a premium to the last traded price like we saw in the case of F&N.
If they have no intention to privatise the company, we could see an offer at a discount to the last traded price like we saw in the case of NeraTel not too long ago. After all, in such an instance, their offer would probably be rejected.
Anyway, minority shareholders like me can only wait and see. :)
Indofood bought the entire GIC’s
stake in China Minzhong last Friday through a marriage trade at a price of SGD1.12. This confirms our view of two weeks ago that Indofood will not be satisfied with only 15% control of Minzhong. We view this transaction positively.
Indofood increased its share holding from 15% to 29% only two weeks after the placement, which shows its eagerness to secure raw material supply from China Minzhong. The potential revenue which Indofood can bring to Minzhong could be substantial.
Maintain BUY with target price unchanged at SGD1.36, pegged to 5x PER.
Maybank KimEng, 4 Mar 13.
Seems the intention is quite clear. "The Salim Group (the parent company of Indofood) is not uninitiated with such M&A, having acquired 6 Chinese consumer goods companies back in 2004-06."
So stay for the offer?
Hi Ah John,
If Indofood is bent on taking China Minzhong private, then, they would have to offer a premium to the last traded price in order to succeed. Is this going to happen? We will have to wait and see.
For me, I have divested more than half of my initial investment in the company as its share price rose, recovering my capital. If the status quo is maintained, there is no reason for me to divest further.
Lin Guo Rong, CEO of China Minzhong, said, “Indofood and China Minzhong have identified many potential synergies between our businesses such as strategic cooperation in supply chain and product distribution in the fast moving markets of China and Indonesia.”
Anthoni Salim, President Director and CEO of Indofood, said: “China Minzhong’s integrated cultivation and processing capabilities provides a strategic fit to our business development. We could leverage on their business model, technology and expertise to strengthen our supply chain and expand our product portfolios.”
China Minzhong recently announced its 2QFY2013 financial results, reporting a 23.6% rise in net profit to RMB215.8 million ($43.2 million), on the back of a 32.3% increase in revenue to RMB860.9 million.
This was underpinned by improved performances across both the group’s Cultivation and Processed business segments. As part of its growth strategies, the company will be increasing its focus on industrialized farming in major cities and regions across China.
The EDGE, 4 March 2013.
Hi AK,
if the status quo maintains, would you not invest further? ie. load up more? and hold till a 8x PE or smth. haha.
Thank you very much for reading.
Hi tostubi,
Bearing in mind that EPS has been diluted with the initial share placement to Indofood, I would like to see if the company could bump up EPS in equal measure. Otherwise, the placement would have made existing shareholders worst off.
With the dilution, a share price of $1.20 now has the same PER as $1.36 prior to the placement, everything else remaining equal.
Of course, we are excited by the value which Indofood could add to China Minzhong. However, it remains to be seen how things would pan out.
Could Mr. Market ascribe a higher PER to China Minzhong? In very bullish circumstances, probably. In early 2011, it briefly hit a PER of 12x.
Other than moments of irrational exuberance, however, Mr. Market seems to ascribe a mid single digit PER to this industry which is where China Minzhong is at now. Buying in now would be buying in at what I consider to be a fair price, not a cheap price.
I have reduced my risk of staying invested in China Minzhong to almost zero. Increasing my exposure at the current price would up the level of risk. ;)
Maybank-Kim Eng tips nine Singapore small-caps with favourable chances for positive corporate action, including investments by private-equity or industry peers, privatisation exercises, new substantial shareholders or unsolicited takeover offers.
“Our choices also reflected attractive underlying valuations as well as positive growth potential, which will be supportive of further share price appreciation even in a non-event, meaning we would be comfortable holding on to these stocks in the long term even if a corporate action does not pan out.”
It tips China Minzhong (K2N.SG), Dukang Distillers (GJ8.SG), Hotel Properties (H15.SG), Midas (5EN.SG), Sarin Technologies (U77.SG), Sing Holdings (5IC.SG), Super Group (S10.SG), Viz Branz (L5J.SG) and Yongnam (Y02.SG).
Dow Jones & Co, Inc, 11 April 13.
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