China Minzhong Food Corporation

[touzi]

b. On the other hand, our integrated business model helps to cushion us if vegetable prices were to fall in a market
down cycle. As far as our working capital allows, we will process the excess fresh vegetables, keep them as
inventories (which are good for three years) in our warehouses and sell them again when prices rebound the
following year.

Fresh vegetable keep for 3 years? Wouldn't they become worse than kiam chye....

[Nick]

b. On the other hand, our integrated business model helps to cushion us if vegetable prices were to fall in a market
down cycle. As far as our working capital allows, we will process the excess fresh vegetables, keep them as
inventories (which are good for three years) in our warehouses and sell them again when prices rebound the
following year.

Fresh vegetable keep for 3 years? Wouldn't they become worse than kiam chye....

[weijian]

b. On the other hand, our integrated business model helps to cushion us if vegetable prices were to fall in a market
down cycle. As far as our working capital allows, we will process the excess fresh vegetables, keep them as
inventories (which are good for three years) in our warehouses and sell them again when prices rebound the
following year.

Fresh vegetable keep for 3 years? Wouldn't they become worse than kiam chye....

Actually i am really sceptical of this 'feel gd' answer. I mean, i don't go to the supermarket much but all the greens (caixin,lettuce,long beans or all the leafy type of veg) that i see, i can't imagine them been bottled up...Normally i only see bottled up mushrooms and the non-leafy kind, u know what i mean - only certain types of fresh veg can be processed and people feel like eating them!

(vested)

[Nick]

If I recall correctly, in their AR 2011, it mentions that nearly 50% of its revenue is derived from mushrooms and around 60% of its revenue comes from the processed division.

Not Vested

[weijian]

yes you are right.

[jackphang]

b. On the other hand, our integrated business model helps to cushion us if vegetable prices were to fall in a market
down cycle. As far as our working capital allows, we will process the excess fresh vegetables, keep them as
inventories (which are good for three years) in our warehouses and sell them again when prices rebound the
following year.

Fresh vegetable keep for 3 years? Wouldn't they become worse than kiam chye....

the annual meeting is coming (28 Oct 2011). Is there anyone coming to the meeting?

The

[weijian]

i am.

[weijian]

Went to the AGM 2011 on 28th Oct. Only about retail 20shareholders turned up but there was a long discussion that dragged at least 1.5hours before the CEO implored everyone to move on..
Below are some of my positives/negatives takeaway that i would like to share

Negatives:
- Mgt hinted no dividends upon request for dividends.
- Organic veg (high margins) only accounts for ~5% revenue. There is not much emphasis on growing it, as capital is been deployed to other areas. It seems to deviate from the impression that they are giving to the rest of the world (as per 1 shareholder's comment)
- Claimed to be in favored industry (of gov). Gets grants, lower interest rates and subsidised receivable insurance premium, but still unable to get longer term loans?!

Positives:
- 3 non executive board directors (2 PE, 1 GIC) are substantial shareholders. I believe this might create better dynamics.
- As it is in a favorable industry (of gov), it can get subsidies for banks loans and trade receivables insurance premiums.
- CEO emphasized that CMZ's model is different from Chaoda (well, at least not the 33% of cultivation biz) - Chaoda is mainly involved in upstream, while CMZ is more of fully integrated - cultivation and manufacturing.

[Nick]

Thanks Weijian for giving us a good summary of the AGM. Seems like time well spent judging by the long discussions of their prospects and business model. Just wondering whether did the Management bring up the need for future equity fund raising to finance their planned expansion of farm land ? And are there plans to expand out of China into Africa or South America for diversification (and become a globalized player) ?

[weijian]

hi Nick,
(1) I think the equity raising was bought up but as usual, they said 'it depends on prevailing circumstances and we are exploring all our options blah blah blah'. My personal opinion is that since they have admitted that they are unable to get longer term loans (like all others in China now) and as 1 shareholder mentioned that land leases cannot be pledged as collateral for bank term loans, i see a considerable probability for equity raising.

(2) Well, no one has as much vision as u, to talk about that! Again my personal opinion is that as per AR, only 2% of farmlands in China are leased, there is still lotsa room for expansion in China before even think about expanding overseas! Instead, i may ask this question of whether they are ready to take over ChaoDa's leases if ChaoDa proves to be a fraud and their CEO goes to jail for insider trading!