China Minzhong

China Minzhong released 1Q14 results which were below estimates, with net profit at Rmb 48.4m (-89% y/y) and revenue coming in at Rmb 637.8m (+4%). q/q comparisons are not relevant on back of seasonal patterns within the industry. The marginal sales increase was largely due to a high revenue base in 1Q13 which recorded an one-off sales rollover from the previous financial year due a shift in the operating peak season caused by a late winter. Operationally, the Cultivation business segment recorded a 30% growth in revenue to Rmb 341.7m, on back of a 28% increase in cultivation volume and higher mushroom spores sales, while sales in the Processed business segment slipped 16% to Rmb 296.1m, due to a decline in sales of beverages and other processed products. EBITDA margins crumbled to 19.5% vs 33.2% on back of higher operating costs in both the Cultivation and Processed business segments, with the group expecting continued margin pressure due to higher labour costs and average selling prices not rising fast enough to offset higher costs. Going forward, the grp continues to see continue to see rising labour costs as a key challenge to its operations, particularly in the cultivation business. But seess continued expansion into industrialised farming as a step in the right direction.