China MinZhong

China MinZhong: Good 1Q13 results, in-line with estimates. Grp’s rev at Rmb613.4m +69.7% yoy and -23.7% qoq and net profit at $121.6m, +30.6% yoy and -28.9% qoq. Drop in qoq performance was largely attributed to seasonality patterns. Gross margins however fell at 30.3% vs 40.7% yoy, partly due to the lull period in summer, where Group will cultivate low yield rice paddy as part of its crop rotation programme to maintain the fertility of the farmlands. Excluding rice paddy, gross profit margin for fresh vegetables produce recorded an increase of 1.9 ppt to 58.8%. Rev was driven by better performances across both the Cultivation and Processed business segments. Rev from processed vegetables, +80.9%yoy to RMB240.2m, underpinned by new customers for the export markets and sales spill over. Rev for other processed products grew 421.6% to RMB111.1m, mainly due to strong domestic demand for vegetables and fruits beverages. Rev from fresh vegetables, +22.6% to RMB192.0m, due to contributions from new farmland which have not yet turned productive in 1Q12. Rev from mushroom spores trading also grew by 38.4% to RMB70.2m, reflecting strong end demand for the Group’s champignon mushroom products. Going forward, grp expects to reap better cultivation yield from approximately 22,000 mu of new farmland, the bulk of which only turned productive in the second half of last financial year. Group is also looking to duplicate its highyield industrialized farming model in other affluent cities in PRC to capitalize on the growing demand. On the processing front, the Group is on track to complete the construction of Phase 2 of its New Industrial Park processing facilities in the coming months. With additional capacity coming on stream, the capacity constraints at the Group’s existing processing facilities will be alleviated during the upcoming peak period.