China Minzhong Food Corporation

[Wildreamz]

The increase in trade receivables turnover is a worrying sign...Does that imply signs of increasing competition, driving sales by loosing credit terms or simply an accounting fraud WIP?

Earnings per share wise, yes they have declined due to the dilution, but do take into account the strategic partnership between China Minzhong and Indofood, the potential synergy could be huge. Moreover, Indofood only bought in earlier this year, the effect is yet to be seen.

Trade receivables wise, perhaps CMZ can best explain it:

Receivables as at end of FY2012 all collected
We believe that the increased trade receivables at the end of FY2012 were due largely to the
credit tightening in the PRC as well as the weather pattern in FY2012. The arrival of the winter
season, whose cool temperature is essential for the cultivation of peak season crops, such as
champignon mushrooms, was delayed in FY2012. This was previously highlighted in our quarterly
financial statements as well as our annual report, extracts of which are exhibited in Annex K. This
resulted in a shift in the operating peak season from the months of December to April in normal
years to January to May in FY2012. This meant that receivables traditionally collected in the
financial year had to be pushed back. As at the end of FY2012, the total trade receivables of the
Group were RMB967.1 million (including those not due). All of these receivables were collected by
the end of 2QFY2013.
As at 30 June 2013, 68% of our receivables were not due, while 31% (approximately RMB338
million) were 1 - 30 days past due. In the month of July 2013, the Group collected approximately 19
RMB 365 million of trade receivables. We typically provide 90 days credit for sales of processed
goods and 30 to 60 days credit for sales of fresh produce. The average credit terms are affected
by the proportion of sales generated from the processed goods and fresh produce. As such, the
average credit terms would also be affected by the proportion of sales generated from the
processed goods and fresh produce. In addition, credit terms commence from the day goods are
received by the customer, whereas receivables are recorded once we issue invoices. In the case
of overseas sales, the difference between the two will be larger taking into account shipping time
and customs clearances.

I agree it is worrying, as there is an inherent risk of default by their customers. Especially in events of further credit tightening around the world and economic downturn.