China Minzhong

China Minzhong: Good set of results which were at the higher end of estimates. 2Q13 rev at Rmb 860.9m, +32.3% yoy, while net profit at $215.8m, +23.6% yoy. Gross margins at 36.5% was flat yoy. Result brings 1H13 rev to Rmb 1.4b, +45.7% yoy and net profit at Rmb 337.4, +26% yoy. Strong performance led by both the Cultivation and Processed business. Grp's Processed business segment contributed 66.7% of total sales while the Cultivation business segment accounted for 33.3%. Cultivation segment continues to contribute a growing sales proportion, on back of increasing urbanization and rising affluence in PRC. Within the Processed business segment, rev +23.1%, arising from orders from new customers and steady growth in demand from existing customers. Rev from other processed products also increased 118%, on strong domestic demand for Grp’s branded products such as vegetables and fruits beverages. In the Cultivation business segment, rev from fresh vegetables produce rose 88.7% to Rmb266.3m, on improved yield and maiden contributions from newly productive farmland. Rev from mushroom spores, however, declined 68.0% to RMB20.4m. Going forward, grp remains confident of outlook, noting that overall demand for vegetables continues to be strong, fuelled by rising urbanization as well as preferences for healthy dietary eating habits. On the global front, growing needs for cost-competitive and consistent raw ingredient supplies by overseas food manufacturers have continued to drive the demand for the Grp’s products. Overall, we note that valuation remains undemanding, with grp trading at a mere 3.8x P/E. Ratings as follow: CIMB upgrades to O/p with $1.35 TP