China Minzhong (CIMB)

China Minzhong: CIMB ceases coverage, as house shares Glaucus Research’s concerns about MINZ’s reliance on capital markets for cash generation and ballooning receivable days. House note that it has been have been sharing Glaucus’s concerns for some time. Minzhong had issued new shares (98m) to Indofood on 15 Feb 13, at $0.915 apiece or 0.7x its FY12 book value. It soon followed this up with an unsuccessful attempt to issue bonds on 8 Mar 13. House found this intensive capital-raising worrying. The co’s willingness to dilute EPS at such an unfavourable price suggests the desperate need for cash when this shouldn’t have been the case. Capex was supposed to be lower this year (according to guidance) with positive free cash flow anticipated by us. Further, Olympus Capital, one of its major shareholders before IPO, had disposed of its remaining 10.3% stake on 6 Dec 12. It is hard to believe management was not aware of both Indofood’s and Olympus Capital’s intentions, considering their transactions were back-to-back. If Indofood’s expertise had been what MINZ was solely after, mgt could have arranged for Indofood to take over Olympus’s stake. Pressure from investors to pay dividends probably weighed on the co. House also worried by its spiking receivable days. FY12 receivable days were 85, up from 45 in FY10 and 43 in FY11.