China MinZhong

China MinZhong: CIMB downgrades to Neutral from Outperform after 3Q12 net profit came in at 36% of its full-year forecast, compared with its historical 46%. House note that earnings let down in what is supposedly Minzhong's peak season was due to both slow topline and cost pressures. Says slowing export demand could be behind lower earnings growth, in addition to a delayed winter. It says it is concerned by an on-quarter spike in receivable days to 84 from 66 vs 3Q11's 59. Cuts fiscal FY12-14 core EPS estimates by 2.8%-15.9% as management indicated it doesn't plan to acquire new open field farmland, a key earnings driver previously. Cuts TP to $0.81 from $1.68. A reason for some concern would be co's rising trade receivables, essentially sales on credit. Co's trade receivables has risen from Rmb201m in 1Q to Rmb508.6m in 2Q to Rmb862.5m for current quarter. This may be negative if Minzhong is unable to collect and the receivables turn to bad debts. Trade payables also rose to Rmb445.7m from Rmb88.2m concurrently without which co may have have operating cashflow problems. Given Minzhong's net debt was 13.6% they may be able to raise financing to solve any short-term cash flow problem but any bad debts might still hit them. Minzhong also has other receivables and prepayments which include advances to suppliers. As of last reported results this morn, co had net assets of Rmb3.4b