China MinZhong

China MinZhong: Announced slightly weaker 3Q12 results, although still on track to meet full yr estimates. Rev at Rmb753.2m, +7% yoy and +15.7% qoq, while net profit at Rmb240.8m, -7.8% yoy and +37.8% qoq. Gross margins fell at 41.3% vs 47% yoy. Wide variance in qoq comparisons was highly attributed to seasonal patterns. On a yoy basis, net profit was lower by due to a late start in the operating peak season as well as higher operating expenses and raw material costs. Arrival of the winter season, whose cool temperature is essential for the cultivation of champignon mushrooms, was delayed, resulting in a shift in Group’s operating peak season. Result brings 9M11 rev to Rmb1.8b, +16.7% yoy and net profit to Rmb508.6m, +8.3% yoy, driven by higher ASP and sales vol in grp’s processed and fresh vegetables segments. Going forward, grp confident of outlook, noting that agri sector is well supported by govt. Continues to see steady demand for vegetables products, both domestically and overseas, underpinned by population growth, rising urbanization and increased preferences for healthy dietary eating habits. With recent increase in raw material costs, will work towards a more cost-efficient use of resources and better economy of scale on new farmland. At current price, valuations are undemanding with grp trading at approx. 4x FY12E P/E and net gearing at a low 13.6%.