China MinZhong

China MinZhong: Posted strong 2Q11 results, albeit at the higher end of consensus estimates. Rev at Rmb545.1m, +40%YoY and +106.4%QoQ (Seasonal Trends), while Net Profit at Rmb156.3m, +35.2%YoY and +198.5%QoQ....

Strong performance driven by grp’s Processed vegetables segment (53% of total rev), which saw rev jump 48.5%, on back of higher sales volume (+31.1%) and ASP increases (+16.7%), as grp shift towards higher value processed vegetables portfolio. Grp’s Fresh vegetables segment also saw rev, +6.1% due to increase in cultivation volumes (+7.3%), while Gross Margins, was fairly stable at 40%, vs 42%YoY, as grp continues to ramp up processing capacity...

Grp further continued to see improvements in its working capital and liquidity efficiency, with 1H11 Cash Conversion Cycle being reduced by 25 days, suggesting strong sales momentum, while Balance Sheet remains strong with a Net Cash Position and current ratio of 7.8x....

Result brings 1H11Rev to Rmb809.1m, +32.2% YoY and Net Profit at Rmb208.7m, +43.3%YoY, and appears highly on track to meet average consensus FY11 estimates, with 3Q11 traditionally registering the strongest rev performance due to seasonal harvest. At current price, grp trades at a conservative annualized 9.9x FY11E PE...

With grp on track to triple current cultivation capacity by 2013 (+90,000 mu additional farmland), and processing output set to increase in tandem with cultivation capacity, we expect a further rerating of stock and remain bullish on grp’s fundamentals, noting that stock has a unanimous Buy Call amg all houses covering it.