3 important events investors must know about China Minzhong

Indofood tie-up looms in the horizon.

Minzhong’s investor relations manager, Dave Tan, participated in CIMB’s annual Asia Pacific conference in Kuala Lumpur on 19-20  June. CIMB noted three key takeaways from the meeting.

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The key takeaways from his meeting with investors are: 1) it will be the cultivation business rather than the processed business that will drive earnings. 

"And to capitalise on this, it will be ramping up industrialised farming facilities. Management is targeting to open three new facilities in Tianjin, Jiangsu and Sichuan. 2) Indofood is likely to get a board seat but this tie-up will take time to yield significant impact on earnings.

Supply contracts for the  processed business can be achieved within six months but the potential JV to build cultivation facilities in Indonesia will take time.

3) The board is seriously considering paying dividends in FY13 but nothing is firm yet. It is possible that Minzhong will look to match Indofood’s 40% payout over time. FY13 operating cash flow is guided to be about Rmb700m-800m.

The key re-rating catalysts will be Indofood getting a board seat and dividends. These two events should ease corporate governance concerns. 

Although free cash flow in FY13 will be low given management guidance that free cash flow will hit a below-expectation Rmb1bn, we think dividends are still possible because of Indofood’s Rmb455m cash injection. A 10% payout would translate into a yield of 2.2%.