Sino Agro Food Inc (fka SIAF)

[RealDutch]

I think management has a real problem explaining margins (and profits) for SIAF and Triway before and after the carve-out. And although Solomon tries to explain it every opportunity he gets, the message still doesn't get across.

Let's do it like this (the numbers are indicative)

BF = Before the carve-out
AF = After the carve-out

 
                 BF                             AF 
       Ownership   Gross Margin       Ownership   Gross Margin 
 AF1      75%           45%              37%          45%    
 AF2       0%           15%              37%          45% 
 AF3       0%           15%              37%          45% 
 AF4       0%           15%              37%          45% 
 AF5       0%           15%              37%          45%

The 15% margin before the carve-out was for resale (marketing fee). That's why the average margin was between 20% and 27% during the years 2013-2016. In a good year for AF1 (when selling lots of eels) it could be as high as 27%. But most years the average margin was closer to 20%.

Now Solomon is projecting a 65%+ increase in gross margin after the carve-out. 0.20 x 165% = 33%. It's not 45%. That's because they are doing depuration at AF1. You get lots and lots of volume (monthly rotation) and only 10% gross margin, bringing down the average gross margin.