China MinZhong

China MinZhong: Announced strong set of 4Q11 results which was above expectations.
Rev at Rmb416.1m, +45.4% yoy and -40.9% qoq, while net profit at Rmb96.9m, +32.9% yoy and -65.9% qoq. Fall in qoq results was largely attributed to seasonal patterns. Result brings FY11 rev to Rmb 1.9b, +35.6% yoy and net profit at Rmb 566.7m, +54.2% yoy.

Strong performance driven by increased sales in both Grp’s cultivation and processed business segments. Cultivation business segment contributed 31% of total reve in FY11, while processed business accounted for the remaining 69.0%. Rev from fresh vegetables produce increased by 38.7% to Rmb510m, on back of a 33.1% growth in cultivation vol, which was boosted by improving yield from maturing farmland and fresh contributions from newly acquired farmland. Underpinned by improved product mix and higher ASP.

Overall gross margin improved by 1.1ppt to 41.5%, driven by a better product mix but partially offset by lower productivity from new farmland. Going forward grp remains confident of prospects and expects to maintain its growth momentum for FY12. At current price, valuations are compelling, with grp trading at 5.8x FY11 P/E vs historical average of 10x.