Macquarie OUTPERFORM on CHINA MINZHONG thanks to organic growth
Macquarie Equities Research said it is reaffirming its “outperform” rating on China Minzhong Food (SGX: MINZ), with a 12-month target price of 2.20 sgd, which has a 24.3% upside.
The brokerage recently visited Minzhong’s processing facility and organic cultivation base in Putian, Fujian Province in eastern China.
“Its organic vegetable farmland was showcased for the first time. This site sits on 3,000 mu of land close to the largest water reservoir in the province. Although only 10% of MINZ’s total veggie land is organic now, management intends to increase that ratio to 1/3 as part of the company’s plan to aggressively acquire new land,” Macquarie said.
Organic margin uplift potential Organic vegetables have two to three times the ASP of regular vegetables and earn 70% gross margins compared with 55% on non-organics, Macquarie said.
Minzhong’s organic products are currently sold directly in supermarkets in two cities in Fujian province.
Considering higher growth trajectory The brokerage added that management indicated it is considering increasing the land acquisition target from the current 30,000 mu to 50,000 mu per year.
“While our current model assumes the 30k/year plan is self funding, moving to a 50k/year trajectory would introduce the risk of further equity raising as debt financing is not available for land acquisition. This additional funding could range from US$50-250 mln."
Branded F&B now accounts for 3% of top line Macquarie said Minzhong now sells its branded beverage and instant vermicelli products in Fujian and five other neighbouring provinces.
“We visited supermarkets and hypermarkets in Fuzhou and saw Minzhong’s products to be well-represented on the shelves. We are not assigning value to the F&B business in our forecasts but it appears that the company is gaining traction with the new growth source.”
New processing facility construction well underway The brokerage added that processing capacity will double upon completion.
“Minzhong is our top pick in the agriculture sector. Management execution on IPO promises has been a crucial factor in the share price performance and we believe recent progress on land acquisition will grant further rerating to the stock. MINZ currently trades at CY11E PER of 8.5x, and our target price of S$2.20 is based on a 10.5x CY11E PER, implying 24.3% potential upside.”
See also: BRIGHT WORLD, MIDAS, MINZHONG FOOD: What Analysts Now Say...
DBS begins COMTEC SOLAR with BUY on positive policies
DBS Group Research said it is initiating coverage of monocrystalline silicon solar wafer producer Comtec Solar (HK: 712) with a “buy” call and a 12-month target price of 5.35 hkd (28% upside potential), following strong recent results and continued supportive government policies for the sector.
The Hong Kong-listed firm’s FY11 EPS is expected to grow by 114% on the back of 178% sales growth, and the current valuation is at 7.4x FY11F P/E.
“This is cheaper than the peer average of 9.2X,” DBS said.
It added that “buoyant demand” in the solar sector and strong subsidy policies, most notably in Europe, pushed global solar installations to 18GW in 2010 from 9GW in 2009.
“This has benefited Comtec, which counts major solar module makers like Suntech, Topsola, Jetion, JA Solar and China Sunergy among its customers.”
For FY11, Comtec has secured 770MW of orders to date, and plans to expand production capacity to 1,000MW by year-end.
“Comtec will continue to focus on its core competency as a pure mono wafer maker, and not venture downstream like some of its competitors. It will continue to develop products such as larger size 210x210mm wafers and more efficient n-type wafers to improve ASPs and gross margins while reducing costs.”
The brokerage added that the nuclear crisis in Japan will shift investors’ focus to safer energy alternatives such as solar, which would be positive for the stock.
See also: COMTEC SOLAR: HK Wafer Listco Gets 1.2 Bln Hkd From TPG Capital