Friday, August 15, 2008

China milk 1Q09

China milk's 1Q results are out.

Only have time to browse through press release and power point slides. I'll do a more detailed analysis when I've the time.

To summarise:

1. EPS increased from 0.11 RMB in 1Q08 to 0.14 1Q09, a 27.3% growth

2. Revenue grown from 124.2 mil RMB to 158.4 mil RMB, 27.6% growth

3. NAV rose from 2.46 to current 2.61 in 1Q09

4. announced JV with a govt owned bureau and a third party (unnamed) to acquire like 200 pedigree bull sires. That's 140 mil RMB investment with 40% stake - all self funded

5. raw milk processing, OEM basis, will be out in 2Q towards end of year

6. Interim dividend declared, around SGD $5.60 per lot

Quick thoughts:

Not sure if they are going to give interim dividends for the next 3 quarters. If they do, that will give an annualised dividend yield of around 3% at last closing price. Great growth from EPS - what's good is that they are not as badly hit by rising material cost as other companies. In fact, they played the inflation game pretty well. Read that they had to buy more fertillisers as they do not have enough generated internally - will this be a long term running cost for the company? Have to read more.

The raw milk processing, having being delayed for some time, had been finalised to be 2Q towards end of this year. Let's hope no more delays now. The announced JV with Heilongjiang govt, with china milk taking a 40% stake, will see them acquire 200 pedigree bull sires. This will strengthen their monopolistic status on their sperm business...a very good sign to me.

Quick valuation

EPS at 1Q is 0.14 RMB. Annualising it gives us SGD 0.112. At last closing price of 0.695, that's a forward PE of 6.21x. Not sure if this is high or low, cos this must be the first time I'm analysing their results. Price is around 1.3x NAV value too. Considering their high current ratio and low gearing, this company will have no solvency issues in the near future.


Thks to littlecupid, who pointed out that my PE calculation for china milk is wrong. It read as 16x initially but I've changed it to the correct 6.21x now.


littlecupid said...

hi :) replied your post in huatopedia, PE should be around 6+ not 16+ right :)

la papillion said...

Thks little cupid,

I've made the necessary adjustments :) Thks for your alert attention!

littlecupid said...

yeah...for a moment I got a shock...haha...will not buy something so expensive in such environment...its suicidal.. :)

Sgbluechip said...

Hi LP, a quick check at share investment showed that ChinaMilk only gave out RMB$0.05 dividend in 2007 and no dividends for FY 2006 and 2008. Not sure about their dividend policy.

Btw, are the cow farms situated in diversified regions? Was wondering if some cow flu or disease might push its share price over the edge.

la papillion said...

Hi sgbluechip,

To be honest, I'm just beginning to understand china milk's business, despite my vested status. From what I know, they do not have a fixed dividend policy. That being said, they appear to want to give dividend. In FY08, they had to forego a dividend because they needed the cash for some capex.

You raised a good and valid concern regarding bovine diseases. Unfortunately, no, as far as I understand, their cows are all located in 17 farms but located all in Heilongjiang region. The management mentioned that the farms are located at a distance from each other to minimise the risk of spreading diseases. They did have insurance against claims arising from the cattle getting diseases.

In fact, through great luck, they managed to import canadian cows (known for their high milk yields) before china banned all imports from canada due to mad cow diseases outbreak. This gave them a monopolistic hold over other competitors as those who want to breed these type of high yield cows will have to buy the sperms/egg from them.

Should disaster strike, it might provide a very good opportunity to enter more PROVIDED that their assets are not sufficiently damaged. Well, just hope it won't come to that.

Sgbluechip said...

Hi LP, thanks for the information. China Milk's share price is also holding up quite well despite the selldown lately.

I am starting to look at S-shares for investment after reading MW's and your blog.

Keep up the good analysis dude!

la papillion said...

Hi sgbluechips,

Haha, mw interested in s-shares?

Sgbluechip said...

Well, I see his interest from detailed analysis on Pac Andes and China Fish recently. He doesn't seem to pick up more of other stocks.