China Minzhong: Macquarie visited the co’s processing facility and organic cultivation base in Putian, Fujian. Believes margins have uplift potential, as mgt intends to boost organic veg land use to 1/3 of total land, from 10% currently. Notes organic veg have 2-3x the ASP of regular veg and earn 70% gross margins compared with 55% on non-organics…
Says mgt also considering increasing the land acquisition target from the current 30k mu to 50k mu pa. Notes that although this could lead to a higher growth trajectory, there is also a risk of further equity raising (est US$50-250m) as debt financing is not available for land acquisition…
Adds, Minzhong’s branded F&B pdts (beverage and instant vermicelli), which make up ~3% of top line, are now sold in Fujian and 5 other neighboring provinces. Notes these are well represented in the supermarkets and hypermarkets it visited, and could be a new growth source.
Pips Minzhong as top pick in the agri sector. Keeps at Outperform with TP $2.20 based on 10.5x PE, vs current PE at 8.5X.
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